platform technologies and multisided markets – the case of electric vehicles david keith ph.d...
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Platform Technologies and Multisided Markets – The Case of Electric VehiclesDavid KeithPh.D StudentMIT Engineering Systems Division
Motivating Phenomenon Increasing momentum behind electricity as
a key alternative fuel platform to displace oil dependence.
The (re)introduction of electric vehicles into American showrooms and driveways is imminent.
Numerous and varied vehicle technologies, battery technologies and recharging methods being developed.
The existing electric grid infrastructure capable of supporting some early adopters.
How to efficiently scale up EV technologies to achieve a sustaining market?
Barriers to Adoption of Alternative Fuel Vehicles
Struben and Sterman (2008): Chicken and egg problem – drivers need fuel, parts,
accessories, but energy providers and auto makers need a market in order to develop these things.
Adoption of new technologies strongly path dependent. Many AFV innovations provide spillover opportunities
for the dominant platform. Once a technology has been deemed a failure, it does
not easily recover. Focus on inter-technology dynamics
The State of the EV Market Production plug-in hybrid and all-electric vehicles available in next 1-3
years (depending on who you listen to), from auto incumbents (ie. Ford, GM) and startups (ie. Tesla).
Auto companies each partnered with different battery company. Battery costs prohibitively high at present ~$1,000/kWh, in the order of
$40,000 per 100 miles of vehicle range. Recharging infrastructure extremely limited, but various pilot projects
underway and startup companies with ambitious plans (ie. Better Place).
Market (largely) lacks agreement over technology standards, governance structures, payment mechanisms etc.
What role do inter-firm dynamics have in the ultimate success of EVs?
Industry Examples - InfrastructureBetter Place Coulomb
Infrastructure Recharging points and battery swap stations
Recharging points
Pricing All-inclusive monthly plan fee based on miles driven (vehicle included)Ie. ~$500/month for 500 miles driving
Bring your own vehicle and pay per useIe. ~$4 per 100 miles
Compatibility Better Place vehicles only Any electric vehicle with compatible plug
Locations Proposed for Israel, Denmark, Australia, Hawaii, Ontario, Bay Area
Limited installations currently in Vancouver, Portland, Chicago, Bay Area, LA, Florida, Texas, etc.
Industry Examples - VehiclesTesla Roadster Chevrolet Volt
Powertrain Battery electric Plug-in hybrid
Range 240 miles 40 miles all-electric,640 miles total using on-board gasoline generator
Cost $109,000 $40,000+
Market Segment High performance sports car
Family sedan
Production Volumes Low High (So GM hope)
Availability Now 2011?
Overarching Questions
What is required to achieve a sustaining market for electric vehicles? Deep reductions in battery costs? Government incentives? To whom? Higher oil prices? A gas tax? A single (open) infrastructure? A particular mix of EV technologies? All of the above?
Definition of Two-sided Platform/Market
Definition: “A two-sided platform provides goods or services to two distinct groups of customers who need each other in some way and who rely on the platform to intermediate transactions between them” (Evans, 2003).
In other words, (increasing) returns exist for each group, dependent on the installed base of the complement group.
Example Two-sided MarketsSeller Platform Buyer
Software Developers Operating System Users
Merchants Credit Card Customers
Sellers eBay Buyers
Advertisers Newspaper Subscribers
Doctors HMO Patients
Men Nightclub Women
Platforms typically reduce transaction costs by:1.Matchmaking (ie. eBay)2.Building an Audience (ie. Newspapers)3.Sharing Costs (ie. Operating Systems)
Multi-sided Market Literature
Emerging literature from: Rochet and Tirole (Toulouse) Evans (Chicago) and Schmalensee (MIT) Van Alstyne (BU, MIT Sloan Ph.D) and Parker (Tulane,
MIT Sloan Ph.D) Literature based on formal economic models and
management/strategy books and journals.
Key Lessons from Existing Literature
1. A firm can rationally invest in a product it intends to subsidize/give away in perpetuity even in the absence of competition.
2. The market that contributes more to demand for its complement is the market to provide with a free (or subsidized) good.
Adobe
Content Creators Audience
Acrobat ReaderAcrobat Writer
$0$300+
Applying These Lessons to EVs…
Infrastructure Providers (Better Place, Coulomb etc.) are the Platform, the key enabler.
Consumers most demand sensitive given initial cost of electric vehicles –> subsidize this side. Early evidence of retail stores willing to provide free EV recharging
to attract customers. Cost-sharing analogy fits Better Place business model.
Customers to subscribe to the platform, sharing the costs of infrastructure development, the “API”. Expectation of customer base via platform incentivizes technology providers (ie. Renault-Nissan) to build BP-specific vehicles.
Limitations of Existing Literature
Literature concentrates on information goods, with a particular emphasis on IT applications.
Formal models based on rational choice theory. Formal models limited to two-sided market for tractability. Assumption of “near zero marginal cost” due to
information nature of good (Parker and Van Alstyne, 2000).
No deductive studies have been undertaken despite numerous real-world examples cited.
The Case of Electric Vehicles
Car purchase decisions have much more $$$ at stake than most current MSM examples
Delays: Slow rate of capital stock turnover in vehicle fleet (average vehicle life ~= 12 years)
Numerous Actors Boundedly Rational Behaviour Non-trivial Marginal Cost Spatial distribution of actors Competing Platforms (Gasoline, Biofuels, Hydrogen etc.) Utility bump for EVs relative to incumbent negative initially
Towards an SD Model
Research Questions – Platform Dynamics
Do the findings from analytical models hold when key assumptions (ie. rationality, marginal cost) relaxed?
Which policy interventions are most successful at stimulating adoption of EVs?
To what extent does the vehicle battery size / recharging rate affect adoption of EVs?
To what extent does the backstop role of gasoline in PHEVs have on the emergence of a sustaining EV market?
To what extent do Vehicle-to-Grid (V2G) interactions affect platform development and adoption of EVs?
Research Questions – Platform Competition
To what extent does the existence of multiple incompatible platforms slow market penetration?
Is a single, open infrastructure the preferred arrangement in order to accelerate adoption?
To what extent does the spatial development of infrastructure affect platform competition?
What strategies/partnerships should auto companies, battery companies, component suppliers pursue?
Research Questions – AFV Competition
How do dynamic feedbacks within the EV market affect the market share of electric vehicles when competing with gasoline and other alternative fuels?
How responsive is the EV market to government intervention compared with other alternative fuel platforms?
=> Embed model of EV market dynamics within broader model of AFV dynamics developed by Struben & Sterman.
Thanks
Supervision Prof. John Sterman – MIT Ass’t Prof. Jeroen Struben - McGill
Funding American Australian Association Australian-American Fulbright Commission
References
Evans, D. S. (2003), “The Antitrust Economics of Two-Sided Markets”, Yale Journal on Regulation.
Parker, G.G. and Van Alstyne, M. (2005), “Two-Sided Network Effects: Information Product Design” Management Science.
Struben, J. J. R. and J. Sterman (2008), "Transition Challenges for Alternative Fuel Vehicle and Transportation Systems." Environment and Planning B.