Essays on Bankruptcy-Induced Exits and Market Outcomes Open Access

Ozturk, Omer Cem (2012)

Permanent URL: https://etd.library.emory.edu/concern/etds/v692t7088?locale=en
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Abstract

The objective of this dissertation is to empirically investigate the effect of bankruptcy-induced exits on product market competition and consumer demand. Specifically, this study looks at the impact of Chrysler LLC's dealer closings as part of its Chapter 11 bankruptcy process in 2009.

The first essay is descriptive, where the objective is to characterize "how" consumer demand and incumbent dealers react to Chrysler LLC dealer terminations. The analysis is conducted using a limited information-based bias-corrected matching estimator. My findings highlight several striking patterns on the consumer and firm side reactions to local market Chrysler LLC dealer terminations. Specifically, I describe how these reactions vary by the brand identity of the terminated dealership, by incumbent brand and by product category.

The second essay focuses on the consumer side and estimates a dynamic structural demand model to run counterfactual simulations in order to better understand the implications of Chapter 11 bankruptcy induced exits. Results of the counterfactual simulations suggest that bankruptcy-induced dealer closings significantly affect what, when and where consumers buy. Accordingly, the insights generated in this essay have appeal to marketing academicians, automobile manufacturers, automobile dealers, and regulators alike.

Table of Contents

1 Overview . . . . . . . . 1


2 Essay 1: Assessing Incumbent Auto Dealers' Reactions to Chrysler LLC's
Bankruptcy-Induced Dealer Network Pruning . . . . . . . . 4

2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 U.S. Automobile Industry and Financial Crisis . . . . . . . . . . . . . . . . . . 11
2.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.4 Empirical Approach and Identification Strategy . . . . . . . . . . . . . . . . . 17
2.5 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.5.1 Effects by Product Category . . . . . . . . . . . . . . . . . . . . . . . 24
2.5.2 Effects by Incumbent Brand . . . . . . . . . . . . . . . . . . . . . . . 26
2.5.3 Effects by the Identity of the Terminated Dealer . . . . . . . . . . . . . 28
2.5.4 Effects by Terminated Dealer-Incumbent Brand Combination . . . . . . 28
2.6 Conclusions and Directions for Future Research . . . . . . . . . . . . . . . . . 30


3 Essay 2: How Does Chapter 11 Bankruptcy Impact Consumer Adoption? An
Investigation of What-, When-, and Where-to-Buy Decisions . . . . . . . . 32

3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.1.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.1.2 Contribution of This Study . . . . . . . . . . . . . . . . . . . . . . . . 36
3.2 Background Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.2.1 Chapter 11 Bankruptcy Reorganization . . . . . . . . . . . . . . . . . 38
3.2.2 Chapter 11 Bankruptcies in the U.S. Auto Industry . . . . . . . . . . . 39
3.3 Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.4 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.5 Model and Inference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.5.1 Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.5.2 Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.5.3 Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.6 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
3.7 Counterfactual Simulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
3.7.1 Impact of Brand Equity Change on What- and When-to-Buy Decisions 56
3.7.2 Impact of Distribution Reorganization on What- and Where-to-Buy Decisions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.7.3 Differential Impact of Brand Equity Change and Distribution Reorganization
on What-to-Buy Decisions . . . . . . . . . . . . . . . . . . . 58
3.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59


Bibliography . . . . . . . . 61

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