A Car for Recognition: The Heterogeneous Market Responses to the Emergence of Electric Vehicles

Liu, Shimeng and Xu, Hangtian and Zhang, Wenqin and Zheng, Wenzhuo (2024): A Car for Recognition: The Heterogeneous Market Responses to the Emergence of Electric Vehicles.

Abstract

In the automobile market, where consumers value the social recognition associated with car ownership, how would introducing a lower-cost alternative influence the market outcomes of traditional internal combustion engine vehicles (ICEVs)? Leveraging high-frequency sales data from China's entire automobile market from 2018 to 2022, we investigate the heterogeneous market responses to the emergence of electric vehicles (EVs) across different price-tier segments. Overall, the emergence of EVs reduces ICEV sales while boosting total automobile sales. More importantly, while EV penetration reduces ICEV sales in low- and mid-end segments, it enhances ICEV sales in the high-end segment. We provide further evidence that the rise of EVs amplifies the symbolic value of high-end ICEVs, resulting in improved sales for ICEV brands with strong social recognition.

• Item Type: MPRA Paper
• Language: English
• Keywords: Electric Vehicle; Market Responses; Symbolic Value; Social Recognition
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L62 - Automobiles ; Other Transportation Equipment ; Related Parts and Equipment; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics

References

Aaker, D. A., & Joachimsthaler, E. (2000). The brand relationship spectrum: the key to the brand architecture challenge. California Management Review, 42(4), 8−23.

Adner, R. (2002). When are technologies disruptive? A demand‐based view of the emergence of competition. Strategic Management Journal, 23(8), 667–688.

Adner, R., & Snow, D. (2010). Old technology responses to new technology threats: Demand heterogeneity and technology retreats. Industrial and Corporate Change, 19(5), 1655–1675.

Amaral, N. B., & Loken, B. (2016). Viewing usage of counterfeit luxury goods: Social identity and social hierarchy effects on dilution and enhancement of genuine luxury brands. Journal of Consumer Psychology, 26(4), 483–495.

Arifoğlu, K., Deo, S., & Iravani, S. M. (2020). Markdowns in seasonal conspicuous goods. Marketing Science, 39(5), 1016–1029.

Bartik, T. J. (1991). Who benefits from state and local economic development policies? W. E. Upjohn Institute for Employment Research.

Barwick, P. J., Cao, S., & Li, S. (2021). Local protectionism, market structure, and social welfare: China’s automobile market. American Economic Journal: Economic Policy, 13(4), 112–151.

Bellezza, S., Gino, F., & Keinan, A. (2014). The red sneakers effect: Inferring status and competence from signals of nonconformity. Journal of Consumer Research, 41(1), 35–54.

Beresteanu, A., & Li, S. (2011). Gasoline prices, government support, and the demand for hybrid vehicles in the United States. International Economic Review, 52(1), 161–182.

Bertrand, M., Duflo, E., & Mullainathan, S. (2004). How much should we trust differences-in-differences estimates? The Quarterly Journal of Economics, 119(1), 249–275.

Bricker, J., Krimmel, J., & Ramcharan, R. (2021). Signaling status: The impact of relative income on household consumption and financial decisions. Management Science, 67(4), 1993–2009.

Burlig, F., Bushnell, J., Rapson, D., & Wolfram, C. (2021). Low energy: Estimating electric vehicle electricity use. AEA Papers and Proceedings, 111, 430–435.

Bushnell, J. B., Muehlegger, E., & Rapson, D. S. (2022). Energy prices and electric vehicle adoption. NBER working paper 29842, National Bureau of Economic Research. Available at: https://www.nber.org/papers/w29842.

Chandrasekaran, D., Tellis, G. J., & James, G. M. (2022). Leapfrogging, cannibalization, and survival during disruptive technological change: The critical role of rate of disengagement. Journal of Marketing, 86(1), 149–166.

Charles, K. K., Hurst, E., & Roussanov, N. (2009). Conspicuous consumption and race. The Quarterly Journal of Economics, 124(2), 425–467.

Chen, H., Hu, Y. J., & Smith, M. D. (2018). The impact of E-book distribution on print sales: Analysis of a natural experiment. Management Science, 65(1), 19–31.

Christensen, C. M. (2013). The innovator’s dilemma: When new technologies cause great firms to fail. Boston: Harvard Business Review Press.

Deng, H., & Ma, A. C. (2010). Market structure and pricing strategy of China’s automobile industry. The Journal of Industrial Economics, 58(4), 818–845.

Desmichel, P., & Rucker, D. D. (2024). Dominance versus prestige hierarchies: How social hierarchy base shapes conspicuous consumption. Journal of Consumer Research, 50(5), 887–906.

Dion, D., & Borraz, S. (2017). Managing status: How luxury brands shape class subjectivities in the service encounter. Journal of Marketing, 81(5), 67–85.

Dittmar, H. (1992). The social psychology of material possessions: To have is to be. New York: Hemel Hampstead, Harvester Wheatsheaf & St Martin’s Press.

Electric New Scope (2020). The cost competition between TLB and LFPB: Which one takes the lead? (in Chinese). Retrieved from https://www.dongchedi.com/article/6907460349281239556.

Erickson, G. M., & Johansson, J. K. (1985). The role of price in multi-attribute product evaluations. Journal of Consumer Research, 12(2), 195–199.

Escalas, J. (2013). Self-identity and consumer behavior. Journal of Consumer Research, 39(5), xv–xviii.

Forsythe, C. R., Gillingham, K. T., Michalek, J. J., & Whitefoot, K. S. (2023). Technology advancement is driving electric vehicle adoption. Proceedings of the National Academy of Sciences, 120(23), e2219396120.

Gentzkow, M. (2007). Valuing new goods in a model with complementarity: Online newspapers. American Economic Review, 97(3), 713–744.

Gillingham, K. T., van Benthem, A. A., Weber, S., Saafi, M. A., & He, X. (2023). Has consumer acceptance of electric vehicles been increasing? Evidence from microdata on every new vehicle sale in the United States. AEA Papers and Proceedings, 113, 329–335.

Goldsmith-Pinkham, P., Sorkin, I., & Swift, H. (2020). Bartik instruments: What, when, why, and how. American Economic Review, 110(8), 2586–2624.

Griskevicius, V., & Kenrick, D. T. (2013). Fundamental motives: How evolutionary needs influence consumer behavior. Journal of Consumer Psychology, 23(3), 372–386.

Han, Y. J., Nunes, J. C., & Drèze, X. (2010). Signaling status with luxury goods: The role of brand prominence. Journal of Marketing, 74(4), 15–30.

Holland, S. P., Mansur, E. T., & Yates, A. J. (2021). The electric vehicle transition and the economics of banning gasoline vehicles. American Economic Journal: Economic Policy, 13(3), 316–344.

Hu, Y., Yin, H., & Zhao, L. (2023). Subsidy phase-out and consumer demand dynamics: Evidence from the battery electric vehicle market in China. Review of Economics and Statistics, 1–50.

International Energy Agency (2023). Global EV Outlook 2023. Retrieved from https://www.iea.org/reports/global-ev-outlook-2023.

Johansen, B. G., & Munk-Nielsen, A. (2022). Portfolio complementarities and electric vehicle adoption. Working paper.

Li, X. (2023). When firms may benefit from sticking with an old technology. Strategic Management Journal, 45(3), 399–428.

Mandel, N., Petrova, P. K., & Cialdini, R. B. (2006). Images of success and the preference for luxury brands. Journal of Consumer Psychology, 16(1), 57–69.

McFerran, B., Aquino, K., & Tracy, J. L. (2014). Evidence for two facets of pride in consumption: Findings from luxury brands. Journal of Consumer Psychology, 24(4), 455–471.

McKinsey & Company (2021). McKinsey China auto consumer insights 2021 (in Chinese).

McKinsey & Company (2024). McKinsey China auto consumer insights 2024. Retrieved from https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/mckinsey-china-auto-consumer-insights-2024.

Ministry of Finance of China (2015). Announcement of the New Energy Vehicle subsidy policy in China from 2016 to 2020 (in Chinese). Retrieved from https://www.gov.cn/xinwen/2015-04/29/content_2855040.htm.

Ministry of Public Security of China (2024). Announcement of car ownership in China (in Chinese). Retrieved from https://www.gov.cn/lianbo/bumen/202401/content_6925362.htm.

Mittal, B. (2006). I, me, and mine—how products become consumers’ extended selves. Journal of Consumer Behaviour, 5(6), 550–562.

Nelson, A., Anthony, C., & Tripsas, M. (2023). “If I could turn back time”: Occupational dynamics, technology trajectories, and the reemergence of the analog music synthesizer. Administrative Science Quarterly, 68(2), 551–599.

Nunes, J. C., Drèze, X., & Han, Y. J. (2011). Conspicuous consumption in a recession: Toning it down or turning it up? Journal of Consumer Psychology, 21(2), 199–205.

Raffaelli, R. (2019). Technology reemergence: Creating new value for old technologies in Swiss mechanical watchmaking, 1970–2008. Administrative Science Quarterly, 64(3), 576–618.

Rao, A. R., & Monroe, K. B. (1989). The effect of price, brand name, and store name on buyers’ perceptions of product quality: An integrative review. Journal of Marketing Research, 26(3), 351–357.

Rao, R. S., & Schaefer, R. (2013). Conspicuous consumption and dynamic pricing. Marketing Science, 32(5), 786–804.

Rucker, D. D., & Galinsky, A. D. (2008). Desire to acquire: Powerlessness and compensatory consumption. Journal of Consumer Research, 35(2), 257–267.

Sengupta, J., Dahl, D. W., & Gorn, G. J. (2002). Misrepresentation in the consumer context. Journal of Consumer Psychology, 12(2), 69–79.

Shapiro, C. (1983). Premiums for high quality products as returns to reputations. The Quarterly Journal of Economics, 98(4), 659–679.

Shriver, S. K. (2015). Network effects in alternative fuel adoption: Empirical analysis of the market for ethanol. Marketing Science, 34(1), 78–97.

Tushman, M. L., & Anderson, P. (1986). Technological discontinuities and organizational environments. Administrative Science Quarterly, 31, 439–465.

Veblen, T. (1899). The theory of the leisure class. New York: Penguin.

Wang, J., & Guo, Y. (2023). Five automakers firmly resist cutting prices amid the intensifying price war in the Chinese automobile market (in Chinese). Retrieved from https://finance.sina.com.cn/stock/roll/2023-03-15/doc-imykxtwz3225649.shtml.

Wang, J., & Xing, J. (2023). Subsidizing industry growth in a market with lemons: Evidence from the Chinese electric vehicle market. SSRN Electronic Journal.

Xu, J., Forman, C., Kim, J. B., & van Ittersum, K. (2014). News media channels: Complements or substitutes? Evidence from mobile phone usage. Journal of Marketing, 78(4), 97–112.

Yao, A. (2023). Uncovering heterogeneous prestige effect in luxury consumption: Insights from the Chinese luxury market. Journal of Business Research, 168, 114235.

Yiche (2023). Multi-vehicle households, the new blue ocean in China’s automobile market amid the era of stock competition (in Chinese). Retrieved from https://news.yiche.com/hao/wenzhang/84793561/.