The Diffusion of Complex Market Technologies: Multifaceted Dynamics for Alternative Fuel Vehicles

Abstract

This paper develops initial steps towards a framework for understanding factors that condition success and failure of complex market technologies. Dynamics of such technologies are conditioned by coevolutionary processes including the development of the installed base, consumer behavior, technologies, complementarities and interlinked supply chains. This paper analyzes diffusion patterns, including failures and successes, of alternative transportation fuel (ATF) and vehicle introductions, natural gas in New Zealand and Argentina, and ethanol in Brazil. I analyze the diffusion patterns of retrospective AFV introductions, failures and successes, through a behavioral dynamic simulation model. I characterize technology diffusion as a process of market formation which requires overcoming a period of fragility. During such a period at least one of the mechanisms conditioning its diffusion works against further spreading. Aggressive, simple strategies to overcome thresholds tend to fail. However, high potential strategies involve policy portfolios that are sustained, synchronized across multiple types of decision makers, and dynamic. Further, the efforts and their duration required to overcome this stage are strongly influenced by institutional and historical contexts. More broadly, the findings provide the groundwork for a framework to analyze processes of market formation for complex technologies. Such a framework involves capturing the fundamental mechanisms cutting across inter-organizational fields, but also includes important system-physiological aspects. Within this framework the traditional S-shaped diffusion curve is a special case with ex-ante usefulness confined to conditions of low market complexity and favorable institutional conditions. We discuss implications for policy and strategy.