M-RCBG Faculty Working Paper No. 2010-04

Consumer Learning and Hybrid Vehicle Adoption

Garth Heutel and Erich Muehlegger

April 2010

Abstract

We study the diffusion of hybrid vehicles among consumers. Using data on sales of 11 different models over seven years, we identify the effect of the penetration rate – total cumulative hybrid sales per capita – on new hybrid purchases. The penetration rate significantly affects new purchases, and the effect differs by hybrid model. In particular, we find a positive diffusion effect from the Toyota Prius and a negative diffusion effect from the Honda Insight, with elasticities of 0.23 to 0.85 for the Prius and –0.08 to –0.32 for the Insight. This finding is consistent with our model of model–specific learning along with anecdotal evidence that early Insight models were perceived to be of lower quality than Prius models. Higher Insight penetration rates gave a negative signal about hybrid quality and inhibited rather than promoted hybrid adoption. The findings are relevant for policy designed to promote new technologies.

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