Market Systems Modeling for Public Versus Private Tradeoff Analysis in Optimal Vehicle Design.

Abstract

The motivating application for this work is the tension between the public versus private tradeoff in the automotive industry between firm profit and the public negative externalities of automotive transportation, particularly fossil fuel energy use and greenhouse gas emissions.

This dissertation establishes a methodology for evaluating automotive vehicle design according to private (firm profit) and public (fuel consumption) criteria. The methodology set forth relies on developments from engineering, economics, and marketing. The primary contribution of this dissertation is that these disparate developments have been brought together in a single mathematical problem formulation for a large-scale problem. The integrated problem formulation will allow study of interdisciplinary issues related to product development in a new way. Other work has begun to develop similar comprehensive problem formulations. This work points to some of the challenges that must be addressed in such formulations. Specifically, the functional form of the cost models, and the utility specification of the demand models can have a large impact on the market outcomes even when the differing models appear to fit the underlying data similarly well. A second contribution is the application of the notion that we can explore the tradeoff between private interests and public interests by simulating market response under different hypothetical scenarios. We can then gain deeper insights by examining the tradeoff relationships between the different scenarios.

The strength of the approach, at its current state of development, lies not in a claim to predict future automotive market behavior but in establishing a quantitative approach for evaluating the implications of future scenarios were they to become reality. Individual firms and policy makers can learn from this approach by comparing the differences between the scenario outcomes.

The problem formulation integrates models of demand, cost, and product performance in order to implement a game-theoritic formulation of producer behavior where producers choose the attributes of the products they produce and the prices they will charge in order to maximize profit. The differences in scenario outcomes based on differences in the demand and cost models are explored.

Several areas for modeling improvement are identified.