This was a classic game theory within the car industry. As it had a long development time of the technology, the first mover had a huge advantage in being the first on the market. It would set up the first company on the market with an imagine of being an environmentally friendly car company, which could have explicit benefits to the company into the future.
There was a lot of imperfect information within the case for Toyota to make its decision. Toyota did not know whether any of their competitor companies were going to develop the hybrid technology as well. They knew that other companies started developing the technology to meet CARB’s zero emission vehicle (ZEV) policies. However, when CARB’s said that hybrid would not qualify to meet their polices, it was suspected that most companies dropped out of researching and developing the technology.
Looking at their competition the most likely competitor who might be producing the hybrid technology is Honda, as it was the first car company in the world to meet the strict environment standards set under Muskie Law in the US. Honda was appealing to a younger market than most other cars and therefore as being environmentally friendly is more appealing to the younger generations, Honda might want to produce the hybrid to cement its market position.
Also the Japanese car markets have been traditionally more efficient in labour hours per vehicle than their American counterparts. And they also used few resources. This means that Toyota and Honda have consistently been able to make cars for lower costs, giving them a cost advantage. This may be a large advantage in developing hybrid technologies. Other companies such as GM may consider the costs too high in developing the technology and therefore may not find it financially sustainable.
There may be some benefit for one or more companies to release hybrid cars at similar times however the benefits are not as great as the benefit for a company if it is the only...
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