Heterogeneity of Indirect Network Effects: Empirical Analysis of the Chinese Electric Vehicle Market

Abstract

Governments can expedite technology adoption by directly subsidizing a technology or supporting the adoption of its complements, especially in the presence of indirect network effects. In this study, we explore the heterogeneity of these indirect network effects arising from variations in product quality and characteristics within the market. Utilizing data on electric vehicle (EV) sales and charger numbers in China, this paper examines the indirect network effects between EV adoption and charging station infrastructure in the world’s largest EV market. Additionally, we assess the effectiveness of EV purchase subsidies and charger subsidies in driving EV adoption. Our findings reveal that the magnitude of the indirect network effects on EV adoption depends on the specific characteristics of vehicles available in the market. Moreover, we observe distinct impacts of the purchase subsidy and charger subsidy on the distributions of EV sales: EV purchase subsidies primarily benefit high-range vehicles and their buyers, while charger subsidies favor low-range vehicles and their buyers.

Keywords: indirect network effect, subsidy, electric vehicles, welfare analysis

JEL Classification: H23, D61, L62