Externalities & Network Effects in EV Adoption: A Transportation Market Example

An example of how externalities and network externalities co-exist in the transportation market can be seen in the case of electric vehicles (EVs). The use of EVs generates positive externalities such as reduced air pollution and greenhouse gas emissions, which benefit society as a whole. However, the adoption of EVs also depends on the presence of charging infrastructure, which is an example of network externality. As more EVs are sold, the demand for charging infrastructure increases, and as more charging infrastructure is built, the value of owning an EV increases as well, creating a positive feedback loop. This means that the adoption of EVs is not just affected by the individual benefits of owning an EV, but also by the collective benefits of having more EVs on the road, which in turn depends on the availability of charging infrastructure.