Compatibility and Investment in the U.S. Electric Vehicle Market

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Abstract:

 

Competing standards often proliferate in the early years of many product markets, potentially leading to socially inefficient investment. The U.S. electric vehicle market has grown by ten-fold in its first five years, with car manufacturers developing and investing in charging stations under three incompatible standards. This paper develops and estimates a structural model of consumer vehicle choice and car manufacturer investment that demonstrates the ambiguous impact of mandating compatibility standards on market outcomes and welfare. Firms under incompatible standards may make investments that primarily steal business from rivals and do not generate social benefits sufficient to justify their costs. But compatibility may lead to underinvestment since the benefits from one firm's investments spill over to other firms. I estimate my model using U.S. data from 2011 to 2015 on vehicle registrations and charging station investment and identify demand elasticities with variation in federal and state subsidy policies. Counterfactual simulations show that mandating compatibility in charging standards would decrease duplicative investment in charging stations by car manufacturers and increase the size of the electric vehicle market.

 

Notes:

Job Market Paper

Last updated on 01/29/2017