Date of Award
Master of Science
Industrial and Manufacturing Systems Engineering
With the increasing concern about the petroleum reserve, fossil fuel prices, and the global warming, people have been looking for renewable and environmental friendly energy sources to replace the use of fossil fuels. Ethanol is produced from agricultural feedstock and has proved to be an appropriate substitute to fossil fuels. Fuel blenders blend ethanol into gasoline in different ratios. Currently E10 and E85 are two of the main transportation fuels with ethanol and they are competing in the market. This study investigates the competition between E10 and E85 with an oligopoly Cournot model and derives several market indices from the equilibrium to measure the performance of the market: E85's market share, E85 price premium which indicate the consumers' additional willingness to pay, and the social welfare which indicates the societal wellbeing from the products. The author addressed several questions on how the government policies impact the market equilibrium, how the industry size affects the market performance of E85, and whether E85 has a bright prospect with the increase of FFVs number. The results from the numerical examples show that the current blending mandate is not binding and the elimination of the tax credit will lead E85 to a more unfavorable situation. The decreasing of the number of firms in the industry, if possible in the future, would give E85 more market share. The increasing of E85's market share is very limited through the increasing of the proportion of FFVs.
The results have some important implications for policy makers. A theoretical feedback is given to the policy makers about the current situation of the ethanol blending mandates and the effect of the eliminating the tax credits. The results also pointed out the fact for policy makers that it is not so useful to increase the number of FFVs in order to promote the consumption of E85 unless it can make the proportion of FFVs go higher than 90%.
Yang, Minwen, "Market competition and social welfare analysis for E10 and E85 with a game theory model" (2012). Graduate Theses and Dissertations. 12535.