Tuesday, April 26, 2011

INSEAD Working Paper 2011/52/TOM/ISIC revised version of 2011/40/TOM

We study the impact of collaboration on the adoption of electric vehicles (EVs) among commercial fleets. Using cooperative game theory, we characterize the joint payoffs for the primary stakeholders in the EV adoption decision - the fleet manager, auto manufacturer, and electricity supplier - to determine the conditions under which EVs become economically feasible for commercial eets. We do so in two settings. We first analyze a scenario where all three stakeholders cooperate in the EV adoption decision, a setting pertinent in regions such as France where a national electricity supplier makes such an arrangement feasible. We next analyze a scenario where the fleet manager and auto manufacturer cooperate but the electricity supplier participates as an independent actor, a setting pertinent in regions such as the United States where no single electricity supplier possesses sufficient market scope to become involved in the EV decision on a national scale. We show that convex per unit EV production costs drive a boundary solution for both the two- and three-party coalition EV adoption decision. We also illustrate the impact of carbon and operating cost advantages of EVs relative to internal combustion vehicles on the adoption of EVs and complementary vehicle-to-grid technology. Comparing the regions of EV adoption within the two coalition settings provides insights into the value of the electricity supplier's cooperation and the conditions under which intermediation to promote such cooperation can add value.