Compatibility and Investment in the U . S . Electric Vehicle Market ∗

Abstract

Competing standards often proliferate in the early years of product markets, potentially leading to socially inefficient investment. This paper studies the effect of compatibility in the U.S. electric vehicle market, which has grown ten-fold in its first five years but has three incompatible standards for charging stations. I develop and estimate a structural model of consumer vehicle choice and car manufacturer investment that demonstrates the ambiguous impact of mandating compatibility standards on market outcomes and welfare. Compatibility may benefit consumers by providing access to all existing charging stations. However, firms may cut back on their investments because the benefits from one firm’s investments spill over to rivals. Firm response in investment may erode consumer gains from compatibility. I estimate my model using U.S. data from 2011 to 2015 on vehicle registrations and charging station investment and identify demand elasticities with variation in federal and state subsidy policies. Counterfactual simulations show that mandating compatibility in charging standards would decrease duplicative investment in charging stations by car manufacturers and increase the size of the electric vehicle market. ∗I am deeply grateful to my advisors Ariel Pakes, Elie Tamer, Robin Lee, James Stock, and Christopher Knittel for their continual guidance and support. I thank Evan Herrnstadt, Gaston Illanes, Divya Kirti, Shanjun Li, Daniel Pollmann, Frank Schilbach, Robert Stavins, Che-Lin Su, Richard Sweeney, Thomas Wollmann, Matthew Zaragoza-Watkins, Yufei Zhao, Fanyin Zheng and participants in the Harvard Industrial Organization, Labor/PF, and Environmental workshop and lunches for helpful conversations, comments, and suggestions. Data purchased for this research is generously supported by the Lab for Economic Applications and Policy. I thank John Smart and Sera White at the Idaho National Laboratory for generously sharing knowledge of the U.S. federal programs that deployed electric vehicle charging infrastructure. †Department of Economics, Harvard University, 1805 Cambridge Street, Cambridge, MA 02138, USA. jingli@fas.harvard.edu.

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Cite this paper

@inproceedings{Li2016CompatibilityAI, title={Compatibility and Investment in the U . S . Electric Vehicle Market ∗}, author={Jing Li and Shanjun Li and Daniel Pollmann and Frank Schilbach and Robert N . Stavins and Che-Lin Su and Richard L. Sweeney and Thomas Wollmann and Matthew Zaragoza-Watkins and Yufei Zhao and Fanyin Zheng}, year={2016} }