The 2015 Volkswagen emissions scandal serves as a natural experiment to demonstrate the economic significance of collective reputation externalities. Through a combination of difference-in-differences and demand estimation methods, this research reveals a spillover effect on non-VW German auto manufacturers. Consumer valuations of these manufacturers’ vehicles dropped by an average of $2,057, resulting in a 34.6% decrease in annual sales. Supporting evidence comes from internet search behavior and consumer sentiment data from Twitter.

Image courtesy of interviewee. December 19, 2023