Abstract
Peer effects (also known as ‘social influence and ‘word-of-mouth’) are believed to play a central role in the diffusion of new products and practices. Peer effects have been identified in the diffusion of new product categories, such as solar photovoltaic panels, as well as for individual products, such as the Toyota Prius hybrid-electric vehicle. In this paper we explore whether peer effects exist between distinct but related products within the same product category. We use an instrumental variables approach to identify within-category peer effects, leveraging California’s high-occupancy vehicle (HOV) lane incentive for hybrid vehicle adoption for which some hybrid vehicle models were eligible and others were not. Comparing hybrid vehicle adoption in California to neighboring Oregon and Washington, we observe that the availability of the incentive resulted not only in an increase in eligible hybrid sales as expected, but also in sales of hybrid vehicle models explicitly ineligible for the incentive, which we attribute to peer effects between buyers of eligible and ineligible hybrids. We find that the sale of 1 eligible hybrid vehicle resulted in the sale of a further 0.461 ineligible hybrid vehicles, with stronger peer effects within- versus between- brands. Our results inform strategic decisions such as timing of entry and product portfolio composition, and efforts to accelerate the adoption of clean technologies and practices more broadly.