Competition and Externalities in Green Technology Adoption

46 Pages Posted: 20 May 2015 Last revised: 4 May 2020

See all articles by Maxime Cohen

Maxime Cohen

Desautels Faculty of Management, McGill University

Georgia Perakis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Charles Thraves

Massachusetts Institute of Technology (MIT) - Operations Research Center; University of Chile - Industrial Engineering

Date Written: May 18, 2015

Abstract

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

Suggested Citation

Cohen, Maxime and Perakis, Georgia and Thraves, Charles, Competition and Externalities in Green Technology Adoption (May 18, 2015). Available at SSRN: https://ssrn.com/abstract=2607688 or http://dx.doi.org/10.2139/ssrn.2607688

Maxime Cohen (Contact Author)

Desautels Faculty of Management, McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Georgia Perakis

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-565
Cambridge, MA 02142
United States

Charles Thraves

Massachusetts Institute of Technology (MIT) - Operations Research Center ( email )

77 Massachusetts Avenue
Bldg. E 40-149
Cambridge, MA 02139
United States

University of Chile - Industrial Engineering ( email )

Rep├║blica 701, Santiago
Chile

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
312
Abstract Views
1,230
rank
105,281
PlumX Metrics