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Two Reasons to Fail? Why conventional market structures and unconventional fossil fuels threaten the low carbon transformation of the auto industry.
Submitted by Dan Coffey, University of Leeds (Business School) on 21 avr. 2015 - 18:43
Type de publication:Conference Paper
Source:Gerpisa colloquium, Paris (2015)
Mots-clés:Industrial Policy, market design, restructuring, threats to auto-industrial transformation for sustainability, unconventional fossil fuels
What are the main reasons for failing to transform the auto industry from a sector dependent upon fossil fuels to an industry founded on cleaner product technologies? The new game of innovation in the world auto industry can be both supported by restructuring of old industries – including automotive – but also significantly impeded. Approaching the problem of auto-industrial change from this perspective, this paper highlights two connected difficulties facing OEMs and governments in an evolving global context:
a) Conventional market structures
Conventional market structures generate two principal profit sources for OEMs in the car and commercial vehicle sectors: the profits generated upon sale of new vehicles, and the profits generated upon sale of new parts to replace old parts in used vehicles. Here the existing dominant form of market organisation is itself an impediment to change: manufacturers engage in an implicit dual decision on vehicle pricing and output, which affects both the number of new cars and commercial vehicles produced and sold, and the rate at which the fleet of used vehicles – and hence parts market – grows. Vehicles incorporating technological departures from conventional fossil fuel powered internal combustion engines (ICEs) likewise tacitly compete with two profit sources. This paper presents a simple demonstration of the OEMs dual decision, and explains the inhibiting consequences for the comparative mass profitability of alternative auto-technologies.
b) Unconventional fossil fuels
If conventional market structures ask one tacit question of policies to promote alternative vehicle technologies, the actual shift in the US and the proposed shift in the UK towards accelerated exploitation of shale oil and shale gas through fracking ask others: is there a trade-off between cheaper (near-term) energy supplies and cleaner technologies, and do Anglo-American policy decisions represent victory for the former over the latter? The often vociferous debate over fracking is largely conducted as a contrast between lower energy bills to benefit industry on the one hand, and risks to the environment on the other: pollution of the water table, seismic activity, spillages, damaging waste. But is there also a risk that a prolonged collapse in oil prices accompanying the move towards energy extraction from unconventional fossil fuel sources will ultimately damage both industry at large and the auto industry in particular, as a consequence of throwing up another obstacle to comparative mass profitability for alternative vehicle technologies. This paper addresses the problems facing auto policy in a changing energy supply context, and in particular the risk of a deepening of the lock-in to the conventional market structure.
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