Enter or not? Strategic interactions between electric vehicle manufacturers and mobility service providers

Abstract

We study a vehicle manufacturer encroachment and multichannel distribution problem in which a vehicle manufacturer (VM) decides whether and how to enter the mobility service market in anticipation of its primary buyer’s responses, i.e., the existing mobility service operator (MSP). Before the VM enters, the relationship between the VM and MSP is between sellers and buyers. However, if the VM enters, their mutual relationship will be complicated. First, since the MSP is better informed than the VM about rider demand information, the VM needs to infer the true mobility service market size from the order quantity requested by the MSP, which results in a “signaling game”. Second, the VM entry might benefit or hurt the MSP, i.e., they might be substitutes or complements. Third, the VM’s entry decision influences the vehicle price. This further affects the surplus of individual buyers in the vehicle sales market and travelers in the mobility service market. In light of this, we develop a dynamic Bayesian game model to characterize the decision process of the VM and MSP. Analytical results show that when VM and MSP are “substitutes” from the perspective of end users, VM’s entry will induce the MSP to decrease its order quantity when the market size is small while maintaining the same level as in the full information setting when the market size is large. This is opposite to the outcome when they are “complements”. Moreover, the seesaw effect between the two markets normally raises MSP’s profit while reducing VM’s profit. Numerical results demonstrate that the VM can strategically determine the optimal vehicle price to induce MSP to distort the order quantity in favor of its benefits. We find that as the size of the vehicle sales market increases, the VM will be better off adopting the multichannel strategy but will allocate fewer vehicles to the mobility service market. The MSP is worse off when they are substitutes while better off when they are complements. We also find that the VM entry benefits travelers since they have additional options and the mobility service prices are lower than when the VM does not enter.