Document Type

Article

Publication Date

8-17-2014

Abstract

We study the effect of differences in product quality on new technology diffusion. We propose a model in which heterogeneity in perceived product quality affects consumer adoption. If consumers experientially infer the quality of a technology, an increase in initial exposure to a low-quality product may inhibit subsequent diffusion. Incentives intended to speed up adoption may in fact have the opposite effect, if they propagate low-quality signals. We examine the predictions of the model using sales data for 11 hybrid-vehicle models between 2000 and 2006. Consistent with press reports that the first-generation Insight was perceived to be of lower quality than the first-generation Prius, we find that, conditional on overall hybrid vehicle adoption in the first two years, locations with a relatively high Prius market share experienced faster subsequent adoption than states with a relatively high Insight market share. We estimate the elasticity of new hybrid sales with respect to the Prius penetration rate is 0.30 to 0.55, while the elasticity with respect to the Insight penetration rate is –0.14 to –0.44.

Comments

This is an Author Accepted Manuscript of the article published as:

Heutel, G., & Muehlegger, E. (2014). Consumer Learning and Hybrid Vehicle Adoption. Environmental and Resource Economics, 1-37.

The final publication is available at 10.1007/s10640-014-9819-3

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