- Friday 13 March 2020
- Dr Xiaogang Che, Senior Lecturer (Associate Professor) in Economics, Department of Economics, City University of London
In this study, we use the announcement of the Volkswagen emissions scandal on 18 September 2015 as an exogenous shock to measure consumers' willingness to pay (WTP) for brand reputation. Only Volkswagen diesel cars produced in 2009–2015 were announced as emissions violators.
Using eBay car auction data, we estimate the impacts of the scandal on the prices of Volkswagen emissions non-violating cars. Our difference-in-differences estimates show that final bid prices decreased by 14% and 9% in diesel and gasoline car markets, respectively, which purely reflected a decline in consumers' WTP for Volkswagen's brand reputation. Additionally, the difference in price-drops between the violating and non-violating diesel cars is statistically insignificant. This may be due to the fact that consumers rationally adjust their WTP by expecting compensation which will almost surely be provided by Volkswagen for violating models.