Dynamics of Technology Adoption and Critical Mass: The Case of U.S. Electric Vehicle Market

58 Pages Posted: 22 Oct 2015

See all articles by Shanjun Li

Shanjun Li

Cornell University - School of Applied Economics and Management

Yiyi Zhou

SUNY Stony Brook - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: September 30, 2015

Abstract

We examine the dynamics of technology adoption and critical mass in network industries with an application to the U.S. electric vehicle (EVs) market. This market exhibits indirect network effects in that consumer EV adoption and investor deployment of public charging stations are interdependent. In markets with positive indirect network effects, multiple equilibria with different level of technology adoption may exist. The diffusion and ultimately the success of technology depend on the equilibrium structure and property. Under certain market conditions, the issue of critical mass arises and the market needs to pass this critical mass in order to reach the high-adoption equilibrium. Using a data set of quarterly EV sales in 354 U.S. metro areas from 2011 to 2013, we quantify indirect network effects and simulate long-run market outcomes in each of the MSAs. Our analysis provides robust and significant evidence of indirect network effects in this market. Simulations show several different market equilibrium outcomes across the 354 MSAs in the long run with a significant number of them exhibiting multiple equilibria and critical mass. Policy suggestions are provided in order to push these markets to pass the critical mass and move towards the high-adoption equilibrium.

Keywords: electric vehicles, indirect network effects, critical mass

JEL Classification: Q4, Q5, R4

Suggested Citation

Li, Shanjun and Zhou, Yiyi, Dynamics of Technology Adoption and Critical Mass: The Case of U.S. Electric Vehicle Market (September 30, 2015). NET Institute Working Paper No. 15-10. Available at SSRN: https://ssrn.com/abstract=2672065 or http://dx.doi.org/10.2139/ssrn.2672065

Shanjun Li (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

Yiyi Zhou

SUNY Stony Brook - Department of Economics ( email )

Stony Brook, NY 11733-4384
United States

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