The Role of Dealer Demonstration in the Adoption of Electric Vehicles

59 Pages Posted: 11 Dec 2022 Last revised: 4 Mar 2024

See all articles by Vishal Agrawal

Vishal Agrawal

Georgetown University - McDonough School of Business

Ioannis Bellos

George Mason University - Department of Information Systems and Operations Management

Hang Ren

George Mason University - Department of Information Systems and Operations Management

Date Written: December 9, 2022

Abstract

A major concern that customers face when considering buying an electric vehicle is the uncertainty about its ability to cover their mobility needs. This ability is known to depend on idiosyncratic driving factors, and customers can fully understand the impact of these factors on the electric vehicle’s range only after purchase. Dealer services like extended test drives can alleviate customers’ concerns and have the potential to increase electric vehicle adoption. However, not all dealers adopt such demonstration practices and their environmental implications are not straightforward. In this paper, we develop a game-theoretic model to investigate when a dealer should offer demonstration services and whether doing so can increase electric vehicle adoption and reduce the environmental impact. We consider customers who differ in their mobility needs and prior beliefs regarding an electric vehicle’s ability to meet their mobility needs. The dealer decides whether to offer conventional and/or electric vehicles and if so, whether to provide demonstration services to resolve customers’ range uncertainty. We find that, in markets that are less optimistic about the achievable range, the dealer should offer demonstration when the electric vehicle technology is more developed, whereas in more optimistic markets she should do so when it is moderately developed. In addition, offering demonstration leads to greater electric vehicle adoption when the electric vehicle technology is less developed and/or when the market is less optimistic about the achievable range. As the electric vehicle technology becomes more developed, offering demonstration can reduce electric vehicle adoption. Further, one would expect that if demonstration leads to greater electric vehicle adoption it would also lead to lower usage emissions because electric vehicles have lower per-mile emissions. We show that offering demonstration may lead to higher electric vehicle adoption, but also higher usage emissions. Our results show that offering demonstration can increase dealer profitability by facilitating price discrimination, yet it does not necessarily increase electric vehicle adoption. Hence, we caution against the purported environmental benefits of offering demonstration and show that it can lead to lower adoption and greater emissions.

Keywords: car dealers, demonstration services, electric vehicles, electrification, environmental impact, extended test drives, green technology

Suggested Citation

Agrawal, Vishal and Bellos, Ioannis and Ren, Hang, The Role of Dealer Demonstration in the Adoption of Electric Vehicles (December 9, 2022). Georgetown McDonough School of Business Research Paper No. 4298689, George Mason University School of Business Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4298689 or http://dx.doi.org/10.2139/ssrn.4298689

Vishal Agrawal (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Ioannis Bellos

George Mason University - Department of Information Systems and Operations Management

4400 University Drive
Fairfax, VA 22030
United States

HOME PAGE: http://mason.gmu.edu/~ibellos

Hang Ren

George Mason University - Department of Information Systems and Operations Management ( email )

4400 University Drive
Fairfax, VA 22030
United States

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