Price competition or technology improvement? An investigation of green car technology

Huge investments in green car research are being made in both the private and public sectors to cope with fuel shortage and environmental challenges. While the future of the green car industry is believed to be promising, its current status of technology is still remote from full-scale commercialisation. Interestingly, car manufacturers focus on different technologies for green car development, for instance, electric, fuel cells, and clean diesel. Given the platform characteristics of green car technology and the technology gap among manufacturers, an interesting question becomes whether both technologically superior and inferior green car manufacturers survive competition and if so, under what conditions. In this paper, we examine competing green car manufacturers' strategic choice between price competition and technology improvement (e.g. R&D investment). Grounded in a stylised model, we find the profit- and welfare-maximising price levels and examine technology improvement effort. Next, we investigate how the scope of network externality and cost differential influence manufacturers' strategic choices, and discuss the welfare implications.

Automated summary

Massive investments are being made in both private and public sectors for green car research to address fuel shortage and environmental challenges. Despite the promising future of the green car industry, the current technological status is still far from full commercialization. Car manufacturers are focusing on various technologies such as electric, fuel cells, and clean diesel for green car development, raising questions about the survival and competition strategies for both technologically advanced and inferior manufacturers.