Network effects in alternative fuel adoption : empirical analysis of the market for ethanol
Abstract/Contents
- Abstract
- This paper investigates the importance of network effects in the demand for ethanol-compatible vehicles and the supply of ethanol fuel retailers. An indirect network effect, or positive feedback loop, arises in this context due to spatially-dependent complementarities in the availability of ethanol fuel and the installed base of ethanol-compatible vehicles. Marketers and social planners are interested in whether these effects exist, and if so, how policy might accelerate adoption of the ethanol fuel standard within a targeted population. To measure these feedback effects, I develop an econometric framework that considers the simultaneous determination of ethanol-compatible vehicle demand and ethanol fuel supply in local markets. The demand-side of the model considers the automobile purchase decisions of consumers and fleet operators, and the supply-side model considers the ethanol market entry decisions of competing fuel retailers. I propose new estimators that address the endogeneity induced by the co-determination of alternative fuel vehicle demand and alternative fuel supply. I estimate the model using zip code level panel data from six states over a six year period. I find the network effect to be highly significant, both statistically and economically. Under typical market conditions, entry of an additional ethanol fuel retailer leads to a 12% increase in consumer demand for ethanol-compatible vehicles. The entry model estimates imply that a monopolist requires a local installed base of at least 204 ethanol-compatible vehicles to be profitable. As an application, I demonstrate how the model estimates can inform the promotional strategy of a vehicle manufacturer. Counterfactual simulations indicate that subsidizing fuel retailers to offer ethanol can be an effective policy to indirectly increase ethanol-compatible vehicle sales.
Description
| Type of resource | text |
|---|---|
| Form | electronic; electronic resource; remote |
| Extent | 1 online resource. |
| Copyright date | 2011 |
| Publication date | 2010, c2011; 2010 |
| Issuance | monographic |
| Language | English |
Creators/Contributors
| Associated with | Shriver, Scott Kennedy |
|---|---|
| Associated with | Stanford University, School of Business Administration. |
| Primary advisor | Hartmann, Wesley R. (Wesley Robert), 1973- |
| Primary advisor | Nair, Harikesh S. (Harikesh Sasikumar), 1976- |
| Thesis advisor | Hartmann, Wesley R. (Wesley Robert), 1973- |
| Thesis advisor | Nair, Harikesh S. (Harikesh Sasikumar), 1976- |
| Thesis advisor | Hong, Han |
| Thesis advisor | Reiss, Peter C. (Peter Clemens) |
| Advisor | Hong, Han |
| Advisor | Reiss, Peter C. (Peter Clemens) |
Subjects
| Genre | Theses |
|---|
Bibliographic information
| Statement of responsibility | Scott Kennedy Shriver. |
|---|---|
| Note | Submitted to the School of Business Administration. |
| Thesis | Thesis (Ph.D.)--Stanford University, 2011. |
| Location | electronic resource |
Access conditions
- Copyright
- © 2011 by Scott Kennedy Shriver
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