Compatibility and investment in the U.S. electric vehicle market
Competing standards often proliferate in the early years of product markets, potentially leading to socially inefficient investment. This paper studies the effect of compatibility in the U.S. electric vehicle market, which has grown ten-fold in its first five years but has three incompatible standards for charging stations. I develop and estimate a structural model of consumer vehicle choice and car manufacturer investment that demonstrates the ambiguous impact of mandating compatibility standards on market outcomes and welfare. Compatibility may benefit consumers by providing access to all existing charging stations. However, firms may cut back on their investments because the benefits from one firm’s investments spill over to rivals. Firm response in investment may erode consumer gains from compatibility.