Economic Regulation Contra Increasing Returns and Path Dependence in the Automotive Industry: A Story of EU and China

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Abstract:

The essay raises a question for policymakers and automotive stakeholders to evaluate the electromobility transition dynamics and consumer expectations. The policy choice of directed technical change unlocks the path-dependent processes shaping the pace of the transition towards electromobility and enables the Chinese electric vehicle producers to enjoy the fruits of the bandwagon effect. We offer an analytical framework of path-dependent consumption and highlight that purchase sequence, network externalities, and consumer expectations will play a vital role in the market competition. We compare the South Korean brands' EU market competition of yesterday with the competition between the EU and Chinese brands of tomorrow and argue that a possibility of an “unexpected” EU market success of Chinese brands exists through increasing returns and quasi-irreversibility of electric vehicle adoption. We discuss the economic regulations and their limited potential to revert the trend of China as a rising electric vehicle export hub.