Publication Detail

Alcohol Fuels and the Chicken and Egg Syndrome


Presentation Series

Suggested Citation:
Sperling, Daniel (1984) Alcohol Fuels and the Chicken and Egg Syndrome. Institute of Transportation Studies, University of California, Davis, Presentation Series UCD-ITS-RP-84-03

Proceedings, VI International Symposium on Alcohol Fuel Technology, Ottawa, Canada, 1984, Vol. 2, pp. 393-399

Investments necessary for the introduction of alcohol fuels may be constrained, even in periods of high energy prices, by a "chicken and egg" syndrome, whereby fuel producers condition their investments on the existence of a fuel market, while automakers condition their's on the availability of fuel supply. The circumstances under which investment paralysis might occur and strategies for overcoming it are explored for ethanol and methanol fuels. This investigation focuses on the structure and size of potential alcohol markets and the attractiveness of alcohol in those markets. The principle of innovation theory that small market niches are needed to nurture innovations until those innovations (in this case the fuel and accompanying vehicle modification) are ready to compete more widely, motivates and guides this analysis.

The following strategies for introducing alcohol fuels are explored: market segmentation by end use, market segmentation by location, and fuel blending. They are contrasted with a strategy that emphasizes the marketing of straight alcohol directly to the dominant retail fuel market. It is argued that market segmentation and fuel blending strategies are inefficient and generally ineffective at overcoming chicken-and-egg barriers; that strategies targeting the retail fuel market, though requiring some government support to succeed, are far superior to blending and segmentation strategies.