Decomposing the effects of consumer boycotts: evidence from the anti-Japanese demonstration in China

Abstract

This paper quantifies the Chinese consumers’ boycott of Japanese cars that immediately followed the anti-Japanese demonstrations in September 2012. We decompose the total boycott effect into two effects: the transfer effect, which refers to consumers switching from Japanese to non-Japanese brands, and the cancellation effect, which captures decline in sales due to consumers exiting the market. We find that the cancellation effect accounts for more than 90% of the total decline in Japanese car sales, implying a small substitution effect in the automobile market, even though brands of all other countries have benefited. This paper provides evidence of both negative and positive impacts of political conflicts for different market participants and includes analysis with welfare implications.

Appendices

Appendices

1.1 Appendix A

To further separate ${\mathsf {CE}}$ and ${\mathsf {TE}}$ and express them as percentages of total changes in sales, we need information on the substitutability between sales of Japanese cars and other cars. Let $\delta$ denote the marginal rate of substitution (MRS), which is conditional on the information set $\varLambda _{t}$; we then have

$$\begin{aligned} \delta \equiv E\left[ \left. \frac{d(\ln {{\mathrm {Sale}}_{{\mathrm {other,t}}}})}{d(\ln {{\mathrm {Sale}}_{{\mathrm {Japan,t}}}})} \right| \varLambda _{t}\right] , \end{aligned}$$

which may be rewritten into a discrete form as¹¹

$$\begin{aligned} \delta =E\left[ \left. \frac{\varDelta {{\mathrm {Sale}}_{{\mathrm {other}}}}}{\varDelta {{\mathrm {Sale}}_{{\mathrm {Japan}}}}}\right| \varLambda \right] /\left( \frac{{\mathrm {Sale}}_{{\mathrm {other}},t_0}}{{\mathrm {Sale}}_{{\mathrm {Japan}},t_0}}\right) . \end{aligned}$$

(8)

The MRS, as conventionally defined, measures the substitutability between sales of Japanese versus other cars, based on the information set. We envisioned the information set to contain not only observable market conditions, but also unobservable attitudes of the Chinese customers towards foreign countries especially Japan. There are three main assumptions for the set up of $\delta$ in Eq. (8). First, consumer preferences are stable. It is especially important that consumers’ attitudes towards Japan are stable, which is arguably true because of the long unhappy history between the two countries. This is also why Eq. (8) does not have a time dimension. Second, non-Japanese and Japanese cars, especially those of similar sizes, are close substitutes, if not perfect substitutes, in the sense that a family may purchase only one car at a time. As a result, the utility function of consumers is a linear combination of consumptions of all cars with a consumer buying the car that gives the highest utility. Last, although price information is unavailable in our data, the prices of new cars in China are stable and can be anticipated almost perfectly. This can be the case because the used car market in China is underdeveloped and most consumers choose to buy new cars from dealership or flagship stores.

1.2 Appendix B

See Tables 7 and 8.

Table 7 Unit root tests

Table 8 Selection of optimal degrees and lags