Wednesday, June 17, 2009

The Economics of Networks

I think this is a pretty cool looking car. Here's Engadget's description:
A little car from up-start Riversimple looks set to deliver the equivalent of 300 mpg, running on hydrogen and utilizing a network of small fuel cells to power four motors, one per wheel. The recently unveiled prototype manages 240 miles on just 2.2 lbs of hydrogen, has a top speed of 50 mph, seats two (reasonably) comfortably, and looks a little like a smiling, new-age Citroen 2CV -- but will hopefully be a more enjoyable to drive.
Pretty exciting right? Well, it might be nice if they would trade off some efficiency for more power (50 mph?!!), but in general it's pretty cool. But we are unlikely to see it anytime soon, for reasons Bhaskar Chakravorti makes clear in Innovation Without Borders:
[...] it is highly unlikely that hydrogen powered vehicles will become the standard anytime soon. A key challenge will be the absence of a system of re-fueling stations that such automobiles can use to replenish the hydrogen used up. But such stations will not be built and the distribution networks will not be in place until there is a strong expectation that there will be sufficient demand. In the absence of the stations, the demand will not materialize, and the automakers will not accelerate their plans for rolling out hydrogen powered vehicles. This circular dilemma is a natural outcome of any “two-sided market”, where each side must wait on the other. The challenge gets exacerbated when there are many sides to the market.
That's just a basic economic analysis, and since the Riversimple isn't even for sale yet, if it ever will be, I guess I shouldn't be disappointed. Yet I am. Sometimes the diffusion of innovation takes way too long.

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