Advertising as Insurance or Commitment? Evidence from the BP Oil Spill

Lint Barrage, Eric Chyn, Justine Hastings

NBER Working Paper No. 19838
Issued in January 2014
NBER Program(s):   EEE   IO   PE

This paper explores how advertising impacts the consumer response to news about unobserved product quality. Specifically, we estimate how British Petroleum’s (BP) 2000-2008 “Beyond Petroleum” advertising campaign affected the impact of the 2010 BP oil spill. We find that BP station margins declined by 4.2 cents per gallon, and volumes declined by 3.6 percent after the spill. However, pre-spill advertising significantly dampened the price response in the short-run, and reduced the fraction of BP stations switching brand affiliation in the long-run. Our results suggest that advertising provides insurance against adverse events. We discuss implications for private provision of environmental stewardship.

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This paper was revised on July 15, 2016

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Document Object Identifier (DOI): 10.3386/w19838

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