Is an Automaker’s Road to Bankruptcy Paved with Customers’ Beliefs? By Ali Hortaçsu, Gregor Matvos, Chaehee Shin, Chad Syverson, and Sriram Venkataraman Online Appendix

A. Proof that Equilibrium Is Unique When Consumers Don’t Care about Survival (γ = 1) When γ = 1, Equation 3 becomes α(p – c) = 1 + exp(δ – αp). The left-hand side increases monotonically in p, while the right-hand side falls monotonically in p and is larger than the lefthand side when p = c, its minimum value. Thus the optimal price is unique. In Equation 2, σ disappears from the left-hand side when γ = 1. Thus the derivative of the left-hand side with respect to 𝜉 ̅ is –(1 + r) < –1. The derivative of the right-hand side with respect to 𝜉 ̅ is –(1 – F(𝜉 ̅))

> –1, so this side falls slower in 𝜉 ̅ than the left-hand side. Because the left-hand (right-hand) side falls from ∞ to –∞ (∞ to 0) as 𝜉 ̅ rises from –∞ to ∞, the two sides of the equation have a unique crossing 𝜉 ̅.

B. Examples of How Parameters α, c, and δ Affect Equilibrium Uniqueness and Multiplicity Price sensitivity α:

1

Marginal cost c:

Mean utility δ:

C. Data Sources Total market size, M:

2

M = 13.493 million. From U.S. “New Vehicle Sales and Leases” series, Bureau of Transportation Statistics. http://www.bts.gov/publications/national_transportation_statistics/html/table_01_17.html Debt service obligation, b: b = $4.5938 billion. From “Financial Highlights - Exhibit 1 General Motors Company and Subsidiaries Supplemental Material,” (http://media.gm.com/content/dam/Media/gmcom/investor/2010/Q1FinancialHighlights.p df). The number was obtained from multiplying the sum of “short-term borrowings,” “current portion of long-term debt,” and “long-term debt” from the consolidated balance sheet as of 3/31/09, by r = 10 percent, which we take to be a reasonable rate on a consol analog to the entire reported composition of short- and long-term GM debt. Survival probability σ: We averaged daily five-year maturity credit default swap (CDS) spreads on GM debt over 1/1/08-12/31/08. These data were obtained from Thomson Financial DataStream. Assuming risk-neutrality, CDS spreads reflect the market’s perception of default probabilities. Thus GM’s average CDS spread over 2008 was 3217.5 basis points implies a survival probability of 0.67825. New car price p: From http://www.carbuyersnotebook.com/archives/2008/02/average_new_vehicle_cost_1.htm, which is itself based on the Comerica Auto Affordability Index data. GM’s operating margin:

3

The margin we used, 3 percent, is a rough average of GM’s reported operating margins over 2004-2008.

4

Online Appendix

When γ = 1, Equation 3 becomes α(p – c) = 1 + exp(δ – αp). The left-hand ... We averaged daily five-year maturity credit default swap (CDS) spreads on GM debt.

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