Introducing electric vehicles? Impact of network effect on profits and social welfare

Electric vehicles enjoy not only vigorous promotion in many countries via green license plates but also state subsidies. This study investigates a traditional combustion-vehicle market and the coexistence of combustion and electric vehicles under the influence of network effects. It evaluates the impact of the greenness gap and network effect on their pricing, subsidies, and market returns, respectively. We then consider the conditions for introducing electric vehicles into the market. The results show that when the network effect is not considered, introducing electric vehicles is beneficial to customers, manufacturer and society. However, when the network effect is considered, introducing electric vehicles can increase manufacturer's profit and social welfare only when the fixed costs of the new product line are sufficiently low. Finally, electric vehicles should be introduced if the greenness gap between the two products is small because this can increase profit, consumer surplus, and social welfare.(c) 2021 Elsevier Ltd. All rights reserved.