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  5. Market Entry, Energy Transition, and Climate Policy in the Global Auto Industry
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Market Entry, Energy Transition, and Climate Policy in the Global Auto Industry

Paper Session

Saturday, Jan. 3, 2026 8:00 AM - 10:00 AM (EST)

Philadelphia Marriott Downtown
Hosted By: Econometric Society
  • Chair: Panle Jia Barwick, University of Wisconsin-Madison and NBER

Market Entry and Plant Location in Multiproduct Firms

Eduardo Morales
,
Princeton University
Alejandro Sabal
,
Princeton University

Abstract

Multinational firms offer diverse products across countries due to variation in consumer tastes and production costs. Cannibalization forces further influence product variety. Using car-industry data, we estimate a quantitative model in which manufacturers decide where to produce and sell their products, featuring complementarities and substitutabilities across choices due to cannibalization, returns to scale and transport cost-savings. We provide a new algorithm to solve this class of combinatorial discrete choice problems. We examine the impact of demand and supply factors on product variety and study the effect of country-specific subsidies on global production, market offerings, and prices. Counterfactuals highlight the relevance of interdependencies and demonstrate how consumption and production subsidies affect foreign outcomes through firms' production relocation.

Product Entry and Industry Dynamics under Protectionism: Evidence from the Global EV Industry

Panle Jia Barwick
,
University of Wisconsin-Madison and NBER
Jack Collison
,
University of Wisconsin-Madison
Shanjun Li
,
Cornell University, NBER and RFF
Yucheng Wang
,
University of Sydney

Abstract

The world is experiencing major energy transitions towards decarbonization and the growth of green industries. At the same time, global protectionism is on the rise, with governments adopting industrial policies and trade barriers to foster domestic development of green sectors. How do these protectionist policies interact with the ongoing energy transition? This paper studies the role of subsidies and tariffs in the global automobile industry's energy transition and automakers' dynamic entry into the electric vehicle (EV) market. Our empirical analysis compiles comprehensive data on the global automobile market from 2004 to 2023 and depicts the key dynamic patterns of global automobile electrification over twenty years. We develop and estimate a structural dynamic model of vehicle entry for the EV market and exit for the internal combustion engine (ICE) market. On the demand side, we estimate heterogeneous preferences for vehicles and EV adoption across major global markets. On the supply side, we model segment-level dynamic entry and exit decisions across markets, and vehicle model pricing behavior. We estimate market-segment-level entry costs and scrap values, and evaluate their interactions with bilateral industrial policies, tariffs, and subsidies. We quantify the magnitude of cannibalization, preemption, and production learning-by-doing (economies of scale) and study the implications of pivotal policies in the industry on the global market equilibrium, as well as the distribution of welfare.

What is the Role of Hybrids in Vehicle Climate Policy?

Kenneth Gillingham
,
Yale University
Arthur van Benthem
,
University of Pennsylvania
Jingyuan Wang
,
University of Michigan
Stephanie Weber
,
University of Colorado-Boulder

Abstract

In multiproduct markets, new technology developments and regulations can have differential effects on firms based on their product portfolios. This study examines regulations in the automobile market, which exhibits a suite of technologies, including conventional vehicles, hybrid vehicles, plug-in hybrid vehicles, and battery electric vehicles. These technologies have different supply chain and on-road environmental implications, differing introduction and production costs, and are imperfect substitutes for one another in the vehicle market. Using detailed microdata on U.S. vehicle registrations, we estimate a structural model of supply and demand in the automobile market that allows for entry of new vehicles. We explore counterfactuals assessing the environmental and welfare impacts of policies focusing on promoting electric vehicles relative to policies focused on hybrid vehicles, highlighting the tradeoffs inherent in automobile policy design.

Discussant(s)
Jin Liu
,
Princeton University
Alejandro Sabal
,
Princeton University
Gretchen Sileo
,
Temple University
JEL Classifications
  • L1 - Market Structure, Firm Strategy, and Market Performance
  • Q4 - Energy