Transition challenges for alternative fuel vehicle and transportation systems

Automakers are now developing alternatives to internal combustion engines (ICE), including hydrogen fuel cells and ICE-electric hybrids. Adoption dynamics for alternative vehicles are complex due to the enormous size and importance of the auto industry and vehicle fleet. Diffusion of alternative vehicles is both enabled and constrained by powerful positive feedbacks arising from scale and scope economies, R&D, learning by doing, driver experience, word of mouth, and complementary resources such as fueling infrastructure. We describe a dynamic model of the diffusion and competition among alternative fuel vehicles, including the coevolution of the fleet, technology, driver behavior, and complementary resources. Here we focus on the generation of consumer awareness of alternatives through feedback from driving experience, word of mouth and marketing, with a reduced form treatment of network effects and other positive feedbacks (which we treat in other papers). We demonstrate the existence of a critical threshold for sustained adoption of alternative technologies, and show how the threshold depends on economic and behavioral parameters. We show that word of mouth from those not driving an alternative vehicle is important in stimulating diffusion. Nevertheless, marketing and subsidies for alternatives to ICE must remain in place for long periods for diffusion to become self-sustaining. Expanding the model boundary to include endogenous learning, technological spillovers and spatial coevolution of fueling infrastructure adds additional feedbacks that further suppress the diffusion of alternative vehicles

The Diffusion of Complex Market Technologies: Multifaceted Dynamics for Alternative Fuel Vehicles

This paper develops initial steps towards a framework for understanding factors that condition success and failure of complex market technologies. Dynamics of such technologies are conditioned by coevolutionary processes including the development of the installed base, consumer behavior, technologies, complementarities and interlinked supply chains. This paper analyzes diffusion patterns, including failures and successes, of alternative transportation fuel (ATF) and vehicle introductions, natural gas in New Zealand and Argentina, and ethanol in Brazil. I analyze the diffusion patterns of retrospective AFV introductions, failures and successes, through a behavioral dynamic simulation model. I characterize technology diffusion as a process of market formation which requires overcoming a period of fragility. During such a period at least one of the mechanisms conditioning its diffusion works against further spreading. Aggressive, simple strategies to overcome thresholds tend to fail. However, high potential strategies involve policy portfolios that are sustained, synchronized across multiple types of decision makers, and dynamic. Further, the efforts and their duration required to overcome this stage are strongly influenced by institutional and historical contexts. More broadly, the findings provide the groundwork for a framework to analyze processes of market formation for complex technologies. Such a framework involves capturing the fundamental mechanisms cutting across inter-organizational fields, but also includes important system-physiological aspects. Within this framework the traditional S-shaped diffusion curve is a special case with ex-ante usefulness confined to conditions of low market complexity and favorable institutional conditions. We discuss implications for policy and strategy

Collective action and market formation: An integrative framework

Research Summary : While extant research recognizes the importance of collective action for market formation, it provides little understanding about when and to what extent collective action is important. In this article, we develop a novel theoretical framework detailing what collective action problems and solutions arise in market formation and under what conditions. Our framework centers on the development of market infrastructure with three key factors that influence the nature and extent of collective action problems: perceived returns to contributions, excludability, and contribution substitutability. We apply our framework to diverse market formation contexts and derive a set of attendant propositions. Finally, we show how collective action problems and solutions evolve during market formation efforts and discuss how our framework contributes to strategic management, entrepreneurship, and organization literatures. Managerial Summary : This article lays out the key considerations that players operating in new markets should contemplate when making nontrivial investments in those spaces. As collective action problems can thwart efforts to establish new markets, we ask: When and under what conditions should market players collaborate rather than act independently? And if players collaborate, how should they coordinate to establish a new market? To address these research questions, we develop a novel generalizable framework of collective action in market formation. Our framework assesses the presence and type of collective action problems that hinder market formation and identifies potential solutions tied to those collective action problems

Essays on transition challenges for alternative propulsion vehicles and transportation systems

Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2006.This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections.Includes bibliographical references.Technology transitions require the formation of a self-sustaining market through alignment of consumers' interests, producers' capabilities, infrastructure development, and regulations. In this research I develop a broad behavioral dynamic model of the prospective transition to alternative fuel vehicles. In Essay one I focus on the premise that automobile purchase decisions are strongly shaped by cultural norms, personal experience, and social interactions. To capture these factors, I examine important social processes conditioning alternative vehicle diffusion, including the generation of consumer awareness through feedback from driving experience, word of mouth and marketing. Through analysis of a simulation model I demonstrate the existence of a critical threshold for the sustained adoption of alternative technologies, and show how the threshold depends on behavioral, economic and physical system parameters. Word-of-mouth from those not driving an alternative vehicle is important in stimulating diffusion. Further, I show that marketing and subsidies for alternatives must remain in place for long periods for diffusion to become self-sustaining.(cont.) Results are supported with an analysis of the transition to the horseless carriage at the turn of the 19th century. In the second Essay I explore the co-evolutionary interdependence between alternative fuel vehicle demand and the requisite refueling infrastructure. The analysis is based on a dynamic behavioral model with an explicit spatial structure. I find, first, a bi-stable, low demand equilibrium with urban adoption clusters. Further, the diffusion of more fuel efficient vehicles, optimal for the long run, is less likely to succeed, illustrating the existence of trade-offs between the goals of the early stage transition, and those of the long-run equilibrium. Several other feedbacks that significantly influence dynamics including, supply and demand, and supply-coordination behaviors, are discussed. In Essay three I examine how technology learning and spillovers impact technology trajectories of competing incumbents - hybrid and radical entrants. I develop a technology lifecycle model, with an emphasis on technology heterogeneity. In the model, spillovers can flow to the market leader and can be asymmetric across technologies. find that the existence of learning and spillover dynamics greatly increases path dependence. Interaction effects with other feedbacks, such as scale economies, are very strong. Further, superior radical technologies may fail, even when introduced simultaneously with inferior hybrid technologies.(cont.) I find that the existence of learning and spillover dynamics greatly increases path dependence. Interaction effects with other feedbacks, such as scale economies, are very strong. Further, superior radical technologies may fail, even when introduced simultaneously with inferior hybrid technologies.by Jeroen J.R. Struben.Ph.D

Understanding the dynamics of alliance capabilities

Strategic alliances have become important strategic options for firms to achieve competitive advantage. Yet, there are many examples of alliance failures. Scholars have studied this phenomenon and identified many reasons for alliance failure, including lack of trust between the partnering firms. Paradoxically, the concept of trust is still not fully understood, specifically how and under what conditions trust comes to break down within the broader process of alliance building. We synthesize a process model that describes the “alliance capability”, including trust, openness, partner contributions, and relational rents. We then translate this framework into a formal simulation model and analyze it thoroughly. In analyzing trust dynamics we identify and explore a tipping boundary, separating a regime of alliance failures and successes. We apply our core findings to openness strategies – decisions about how much knowledge to share with partners. Our analyses reveal that strategies informed by a static mental model of trust, contributions, and openness, under undervalue openness. Further, too little openness risks early failure due to the being trapped in a vicious cycle of trust depletion

Identifying Challenges for Sustained Adoption of Alternative Fuel Vehicles and Infrastructure

This paper develops a dynamic, behavioral model with an explicit spatial structure to explore the co-evolutionary dynamics between infrastructure supply and vehicle demand. Vehicles and fueling infrastructure are complementarities and their chicken-egg dynamics are fundamental to the emergence of a self-sustaining alternative fuel vehicle market, but they are not well understood. The paper explores in-depth the dynamics resulting from local demand-supply interactions with strategically locating fuel-station entrants. The dynamics of vehicle and fuel infrastructure are examined under heterogeneous socio-economic/demographic conditions. The research reveals the formation of urban adoption clusters as an important mechanism for early market formation. However, while locally speeding diffusion, these same micro-mechanisms can obstruct the emergence of a large, self-sustaining market. Other feedbacks that significantly influence dynamics, such as endogenous topping-off behavior, are discussed. This model can be applied to develop targeted entrance strategies for alternative fuels in transportation. The roles of other powerful positive feedbacks arising from scale and scope economies, R&D, learning by doing, driver experience, and word of mouth are discussed