Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?



  • An Overview of the Market for Driverless Cars

    Two Potential Market Outcomes

    Complementary Infrastructure Requirement

    Benefits of Self-Driving Cars

    Costs of Self-Driving Cars



    System Evolution


    Driverless (autonomous) vehicles is one of the hottest topics being discussed in the news lately. Some writers have been touting the enormous benefits adoption of driverless cars will bring, emphasizing the utopian scenario associated with the new technology. Others have noted the large industries dislocations their adoption will create, emphasizing the dystopian scenario. This analysis is my attempt to better understand what the market for driverless cars will entail.


    Two Potential Market Outcomes

    There have been two general market scenarios bandied about in discussions of autonomous vehicles:

    • Personal Self-Driving Cars (PSDC): In this scenario people generally own their own vehicles, but instead of people doing the driving, the vehicles drive themselves. This market outcome would yield a vehicle environment that looks relatively similar to the one that exists today, except that cars would have no drivers.
    • Shared Self-Driving Cars (SSDC): In this scenario people don’t own their own vehicles. Instead, third-party providers of transportation services own fleets of driverless vehicles, which people hail when they need to go somewhere. In other words, the SSDC scenario conflates autonomous vehicle with peer-to-peer (or sharing) technologies. This market outcome would yield a vehicle environment that is radically different from the one that exists today.
  • Discussion of the Mapping Apps Game

    Mapping apps, such as Waze and Google Maps, have created enormous value for users by helping them get to where they’re going faster. As least initially, when few people were using mapping apps, the apps were particularly helpful for individual users in rerouting them around traffic problems. However, now that a large portion of drivers has adopted mapping apps, we’re seeing problems with side routes becoming congested, as everyone is being rerouted through the same detours. So not only is there congestion on the original route -- from where drivers have been re-routed – but there is now congestion in many more additional locations in society – to where drivers have been re-routed.

    It turns out that mapping apps are most beneficial to users for dealing with congestion problems when only a few users have adopted them. But they become less useful to users as more people adopt them. That is, the mapping apps exhibit negative network externalities for users when it comes to congestion. At the same time, as more people adopt mapping apps, other members of the community – those who live on the routes through which mapping app users are being re-routed – also suffer, yet another negative externality.

    What we have is a game:

    • Providers of mapping apps want as many Users as possible to adopt
    • Users of mapping apps want as few Users as possible to adopt
    • Local Drivers want as few Users as possible to adopt
    • Freeway Drivers are happy if Users of mapping apps divert to local roads, if it reduces congestion on the freeway.

    This analysis examines mapping apps and other types of resource allocation games.

  • Electric Vehicles and Social Welfare

    Terminology/Technical Information

    Players in the Electric Vehicle Game

    Current Stages of Adoption of Electric Vehicles

    Advantages and Disadvantages of Electric Vehicles

    Energy Inputs and Emissions Costs of Electric Vehicles

    Should the Construction of Electric Charging Stations be Subsidized by the Public?



    A recent article in the WSJ, “U.S. Utilities Push the Electric Car” by Cassandra Sweet, notes that electric companies nationwide are seeking to charge electricity consumers extra fees to fund construction of electric vehicle charging stations by the electric companies. The rationale is that having more charging stations available will speed adoption of electric vehicles by consumers, thereby leading to fewer pollutant emissions, and thus higher air quality for everyone.

    Should all electricity consumers be required to pay the construction costs of electric vehicle charging stations?

    The answer to this question requires understanding the underlying distribution of the private and social costs and benefits associated with manufacture and use of conventional versus electric vehicles.

  • Has the Time for Electric Cars Finally Come?

    A recent article in the NYT, “Sites to Refuel Electric Cars Gain a Big Dose of Funds” by Nelson D. Schwartz,described the latest development in the evolution of the market for electric cars:

    Better Place, the closely watched start-up that hopes to create vast networks of charge spots to power electric cars, is set to receive a vote of confidence on Monday, in the form of $350 million in new venture capital.  Although Better Place will most likely require billions more in financing, this investment is an important step for the company...

  • Is the Autonomous Vehicle Ecosystem in Balance?

    The Technology Triangle

    Years ago I attended a meeting on intellectual property (IP). One of the speakers, a sharp IP attorney named Pat Ellison, gave a talk, which greatly resonated with me. He said that a successful technology requires a balance between technology, business, and law, as represented by the triangle in Figure 1. (I recently contacted Pat about the origin of this idea and he said he was fairly sure that the idea was developed collaboratively with others, but he couldn’t remember who the other contributors were.) Very succinctly, descriptions for the requirements are:

    • Technology: The technology must work well.
    • Business: The technology must be cost effective, that is, is must able to be manufactured and sold for a profit.
    • Law: The legal and regulatory underpinnings of the technology, including intellectual property foundations and liability issues, must be sound.

    A successful technology will exhibit balance in each of the three areas in the sense that if any of the three is too weak – the technology doesn’t function well, the technology cannot be sold for a profit, and/or the intellectual property is invalid or ineffective or other regulatory issues have not been settled – then the technology will not become commercially successful.

    Figure 1


  • Playing the Public Roadways Game

    Electric scooters (“e-scooters”) are one of the latest hot new tech toys on the scene. Several start-ups have unloaded thousands of rentable e-scooters onto the streets of major cities in the US. The scooters offer users a cheap and convenient way to travel short distances across town. These scooters are dockless: users leave them on the anywhere on the street -- no need to find a docking station at a predetermined location. Quite the convenience for users. But quite the hazard and eyesore for local residents, who are finding scooters indiscriminately strewn about the sidewalks.

    I started to map out the Electric Scooter Game. That involves identifying the players who interact with e-scooter users. However, as I started identifying the players, the game quickly expanded from e-scooters on sidewalks or in bike lanes to all users of roadways.

    I realized that two trends have quickly engulfed our cities. First, capitalism has provided ever more modes of transportation – types of vehicles – to move us from one place to another. And second, city and suburban roadways have become much more congested. Together, these two trends are creating a fantastic game between people using different modes of transportation to get to where they want to go, as quickly, conveniently, and cheaply as possible.

    This analysis will first review the electric scooter market – who the major companies are, how electric scooter rentals work, and regulatory actions that have recently been taken by cities against scooter companies.

    The analysis will then move on to examine the broader Public Roadways Game. This game examines the dynamics among all the different users of public roadways, together with other interest groups whose actions affect the use of public roadways.

  • Social Development Requires More Than Just New Technology

    This post continues the discussion about what society needs in addition to technology to develop. In my previous entry, The Growth and Development Paradox, I established that

    • Technology enables societies to develop.
    • Foundational technologies have existed for thousands of years.
    • Yet, sustainable development didn’t occur until the Industrial Revolution.
    • Technological development is thus not sufficient for societies to develop. There’s something else — in addition to technology —that’s necessary for society to develop.

    Let’s consider the automobile as a case study of what else society needs, in addition to technology alone, to be able to develop.

    Most people would agree that the automobile has been one of the most influential technologies of all time. Since its inception in the late 1800s/early 1900s, the automobile has fundamentally shaped American society: it has provided unparalleled mobility to the masses, engendered suburbia, empowered women to take a more active role in society, created numerous jobs, and shaped our leisure activities (cruising and road trips, drive-in movies and restaurants, etc.).[1] In short, the motor vehicle has turbo-charged social development.

    Currently, about 100,000 patents cover automobiles.[2] That’s a huge amount of innovation! But it wasn’t just automobile technology alone that enabled society to develop based on the automobile. Yes, the automobile offered society the potential to develop. However, to realize that potential, society needed more than just the technology alone: Society needed changes in Community, Markets, and Government to accommodate changes in Technology and unlock the potential that technology provides. Let’s consider the changes in Technology, Community, Markets, and Government required for successful widespread adoption of the automobile in society, thereby enabling mobility of the masses.

    Automobiles replaced railroads, horse-drawn carriages, and bicycles as more comfortable, convenient, and efficient means of traveling short and long distances.[1] However, in addition to automobile technology, widespread adoption of the automobile in the US required the majority of Americans to have: (i) disposable income and access to affordable automobiles; (ii) roadways and infrastructure; (iii) widely available sources of fuel and repair services; (iv) public space for parking; and (v) education and licensing programs to teach people how to drive and how to follow the rules of the road.

    4 systems automobile

  • The Auto Emissions Game, Part 1

    The Players: Incentives and Potential Actions



    Automobile Manufacturers

    Emissions Testers

    Gasoline vs. Diesel vs. Hybrid Automobiles

    US vs. European Automobile Standards and Procedures


    Approval Process


    The VW emissions scandal has brought the issue of automobile emissions to the forefront of discussions. Recent scrutiny of industry practices has led to further revelations about behaviors of industry players. In particular, auto manufacturers have been gaming the emissions testing system by increasing amounts over time, while regulators – particularly those in Europe – have been lax in establishing/enforcing appropriate standards. Taken together, the actions taken by auto manufacturers and regulators have led to real-world levels of pollutant emissions from automobiles that significantly exceed healthy limits.

    This analysis examines the evolution of incentives and actions taken by each set of automobile industry players (Regulators, Users, Manufactures, and Emissions Testers), together with the actual outcomes that have occurred, as well as the potential alternative outcomes that might have occurred under alternative scenarios.

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

  • The Auto Emissions Game, Part 2

    How Did We Get Here?

    Actual vs. But-For Outcomes

    Actual Outcome

    But-For Outcome

    Other Possible But-For World

    Other Questions

    Why Didn’t a Competitor Blow the Whistle on VW?

    Will VW Users Take Their Cars in for Repair?

    Will Users Punish Automobile Manufacturers for Gaming the System?


    In Part 1 of this analysis, I described the evolution of incentives and actions taken by each set of automobile industry players (Regulators, Users, Manufactures, and Emissions Testers). In this section I examine actual and potential alternative dynamics of the game.

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    How Did We Get Here?

    Recent investigations of automobile industry practices – mostly as a consequence of the VW scandal – have shown that pretty much all Automobile Manufacturers have been gaming emissions testing procedures by an increasing amount over time, while Regulators have largely condoned their actions. VW’s “defeat device” was clearly illegal and will be sanctioned. However, the other general practices by all industry players, such as vehicle and equipment priming, which have led to actual levels of emissions far above those intended, have long been accepted as legal and standard practice in the industry by both Regulators and Auto Manufacturers.

    Brad Plumers published two separate articles in Vox that provide fantastic descriptions of the European Government’s encouragement of diesel-fuel automobiles in Europe: “Europe's love affair with diesel cars has been a disaster”, together with the specifics of VW’s actions: “Volkswagen's appalling clean diesel scandal, explained”.

  • The Current State of Electric Vehicles Part 1: Electric Vehicle Battery Basics

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    The following are the essential factors at issue when considering batteries for use in powering electric vehicles:

    Amount of Energy that Can Be Stored

    The batteries of any given size that are able to store the greatest amount of energy in terms of both weight (specific energy) and volume (energy density) of the battery are the most desirable (efficient) to power electric vehicles. Perhaps the largest current disadvantage in terms of the state of battery development for electric vehicles (EVs) is the fact that currently EVs cannot go very far without having to have the battery recharged, creating so-called range anxiety. Lower battery range would be less of a problem if (i) there were more fueling stations around (currently there are very few refueling stations), and/or (ii) it didn’t takes so long to recharge the battery (20 minutes to several hours, depending upon the technology of the charger). Currently, EV manufacturers are working fiercely to increase both the specific energy and/or energy density of batteries for EVs so as to achieve greater vehicle range.

  • The Current State of Electric Vehicles Part 2: The Earliest Electric Vehicles (Hybrids) Used NiMH Batteries

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    The relationship between specific energy and energy density for various types of batteries are presented in Figure 1, which was taken from Justin Amirault, et. al. “The Electric Vehicle Battery Landscape: Opportunities and Challenges”

    Figure 1

  • The Current State of Electric Vehicles Part 3: Electric Vehicles Now Use Lithium-ion Batteries

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    From the beginning, the biggest problem facing all-electric vehicles has been their short range, that is, they cannot go very far without having to recharge their batteries. Since lithium-ion (Li-ion) batteries offer the greatest energy capacity and density of all the batteries, and thus the greatest potential for longer range, Tesla chose to use Li-ion batteries to power its first all-electric vehicle, the Tesla Roadster. As Tesla notes:

    Tesla battery packs have the highest energy density in the industry


    Nickel Metal Hydride (NiMH) batteries are commonly used in hybrid cars. However, a 56 kWh NiMH battery pack would weigh over twice as much as the Roadster battery. Instead, Tesla uses Li-ion battery cells which dramatically decrease the weight of the Roadster pack and improve acceleration, handling, and range.

  • The Current State of Electric Vehicles Part 4: Current Electric Vehicle Offerings

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    Now let’s take a look at the characteristics of the current offerings of electric vehicles across manufacturers, which are presented (above in Figure 2 and) in Figures 4 and 5.

    Figure 4

    Figure 5

  • The Current State of Electric Vehicles Part 5: The Costs of Manufacturing Li-ion Batteries

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    This section examines the structure of costs associated with manufacturing Li-ion batteries for use in electric vehicles.

    The battery packs used in electric vehicles consist of numerous individual batteries connected together and packaged into modules, which are then connected together and packaged into battery packs.  David L. Anderson, in “An Evaluation of Current and Future Costs for Lithium-ion Batteries for Use in Electrified Vehicle Powertrains” explains this process in a bit more detail:

    [F]or automotive applications, individual cells are typically connected together in various configurations and packaged with associated control and safety circuitry to form a battery module. Multiple modules are then combined with additional control circuitry, a thermal management system, and power electronics to create the complete battery pack…

  • The Current State of Electric Vehicles Part 6: The Future of Electric Vehicles

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    In Part 1 we learned that the essential factors at issue when considering batteries for use in powering electric vehicles include (i) the amount of energy that can be stored, (ii) longevity, (iii) cost, and (iv) safety.

    In Part 2we learned that (i) theearliest EVs (hybrids) used NiMH batteries, due to their greater safety, longer life, and lower cost; and (ii) two factors led to the industry-wide adoption of Li-ion batteries as the battery family of choice for electric vehicles: (a) their potential for greater vehicle range, and (b) patent access problems to NiMH battery technology.

    In Part 3 we learned that (i) current EVs use Li-ion batteries because they offer the greatest potential energy capacity and density; (ii) Li-ion batteries include a family of batteries composed of different materials; (iii) the cost of the battery is the largest cost component of electric vehicles; of the battery costs, the most significant contributors are the costs of the raw materials, which vary greatly in price; and (iv) different material constructions of Li-ion batteries generate differences in battery performance, where the ranking of battery potential from least to greatest is (a) LCO (1st gen) and LMO (2nd gen), (b) LFP (3rd gen) and NMC (4th gen), and (c) NCA and LTO.

    In Part 4 we learned that information on current EV offerings provide three indications: (i) many of the current EV offerings are “compliance cars”; (ii) the performance of most EVs is clustered around similar levels of energy capacity and range; and (iii) the battery manufacturing industry is consolidating around a few key suppliers.

    In Part 5 we learned that (i) high quality control standards for the manufacture of batteries for EVs result in low manufacturing yields, on the order of about 60%; (ii) materials account for about 75% of total manufacturing costs of batteries for EVs; and (iii) cost reductions in the manufacture of lithium-ion batteries may be achieved through larger scale production volumes and technological breakthroughs.

    Putting it all together yields the following insights.