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How vehicle market is segmented and influenced by subsidy policy: A theoretical study

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  • Chen, Xiao
  • Wu, Tian
  • Zheng, Rui
  • Guo, Xiaoxian

Abstract

This paper studies how vehicle market is segmented among consumers and what impacts subsidy policy may have on segmentation. With constant elasticity of substitution utility function and unit demand, we find positive market share for both high-end and low-end vehicles, but not necessary for middle-end vehicles. Market segmentation may have two regimes according to different levels of subsidy on electric vehicles (EVs), and only a sufficiently high subsidy allows for the existence of low type EV market share welcomed by median income consumers. An EV subsidy cut will definitely crowd out the market share of high type EV and expand that of internal combustion engine vehicle (ICEV). And given in a regime where low type EVs survive, EV subsidy cut’s influence on low type EV market share is ambiguous, which depends on the relative consumer density around decision cutoff points.

Suggested Citation

  • Chen, Xiao & Wu, Tian & Zheng, Rui & Guo, Xiaoxian, 2018. "How vehicle market is segmented and influenced by subsidy policy: A theoretical study," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 776-782.
    • Handle: RePEc:eee:transa:v:118:y:2018:i:c:p:776-782
    DOI: 10.1016/j.tra.2018.10.026
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    2. Deng, Shiming & Li, Wei & Wang, Tian, 2020. "Subsidizing mass adoption of electric vehicles with a risk-averse manufacturer," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 547(C).
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    4. Lin Ma & Qinchuan Du & Tian Wu, 2019. "Government Intervention and Automobile Industry Structure: Theory and Evidence from China," Sustainability, MDPI, vol. 11(17), pages 1-25, August.
    5. Park, Soyeong & Maeng, Kyuho & Shin, Jungwoo, 2023. "Efficient subsidy distribution for hydrogen fuel cell vehicles based on demand segmentation," Technological Forecasting and Social Change, Elsevier, vol. 186(PA).
    6. Zhao, Meng & Li, Bin & Ren, Jiali & Hao, Zhihua, 2023. "Competition equilibrium of ride-sourcing platforms and optimal government subsidies considering customers’ green preference under peak carbon dioxide emissions," International Journal of Production Economics, Elsevier, vol. 255(C).
    7. Mu Li & Yingqi Liu & Weizhong Yue, 2022. "Evolutionary Game of Actors in China’s Electric Vehicle Charging Infrastructure Industry," Energies, MDPI, vol. 15(23), pages 1-20, November.
    8. Liwen Shi & Zhonglin Fu & Wei Guo & Jing Zhang & Jiang Sun, 2023. "Exploring the Factors That Promote Sustainable Growth in Regional Sales of New Energy Vehicles: An Empirical Study of China," Sustainability, MDPI, vol. 15(8), pages 1-16, April.

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