Competition and Externalities in Green Technology Adoption
46 Pages Posted: 20 May 2015 Last revised: 4 May 2020
Date Written: May 18, 2015
We study a model of competition with multiple suppliers who sell green technology products, such as electric vehicles. The government offers consumer subsidies to encourage adoption. We consider a setting where suppliers adjust price and production quantities depending on the level of subsidies offered by the government. We quantify how competition affects consumers, suppliers, and the government relative to the monopolistic setting where all the products are jointly produced. Our model incorporates demand uncertainty as well as externalities. We first compare different government objectives and convey that the magnitude of the externalities plays a key role in selecting the right objective. We then show that the impact of competition depends on demand uncertainty, suppliers' asymmetry, and the magnitude of the externalities. Under low externalities, we show that competition hurts suppliers and benefits the government. Interestingly, competition does not always benefit all consumers. In a market with large externalities, consumers, unlike the government, are always better-off in a competitive environment. Finally, we test our model and validate our insights using public data from the electric vehicle industry, which is becoming increasingly competitive.
Keywords: Competition, Externalities, Government Subsidies, Green Technology Adoption, Newsvendor
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