Product-Harm Crises and Spillover Effects: A Case Study of the Volkswagen Diesel Emissions Scandal in eBay Used Car Auction Markets

Abstract

The Volkswagen emissions scandal began in 2015, when the U.S. Environmental Protection Agency announced that diesel cars produced by Volkswagen from 2009 through 2015 were in violation of emissions standards. The authors analyze the impact of this announcement on transaction prices for Volkswagen cars on the U.S. eBay Motors. The main focus is on Volkswagen cars other than the 2009–2015 diesel models—namely, vehicles that did not violate agency standards, enabling an assessment of whether the negative shock received by the emissions standards violators spilled over to other Volkswagen models that were in compliance. The difference-in-differences results show that final bid prices declined after the announcement by 14% for nonviolating diesel cars and 9% for nonviolating gasoline cars. The analysis also provides little evidence of considerable changes in the numbers of participating bidders, bidding strategies, numbers of listings, and reserve-price strategies, suggesting that the drops in prices likely resulted from lowered willingness to pay from buyers.