LAUSR

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.