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The dynamics of competition in the Chinese electric vehicle market: Insights from BYD’s market evolution

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Listed:
  • Hao, Yiran
  • Hao, Yu

Abstract

We study how BYD sustained stable price-cost margins of 19–23 % despite losing 74.6 percentage points of market share in Xi’an between 2014 and 2020—a pattern that diverges from standard IO theory predicting entry compresses both share and markups. Using transaction-level microdata, we estimate a structural model and develop a sequential counterfactual decomposition isolating seven drivers of market-share change. We find three core results. First, markup resilience stems from cost leadership: BYD’s vertically integrated battery production enabled aggressive price competition while maintaining profitability. Second, unobserved consumer preference shifts explain 47.9 % of the decline, vastly exceeding subsidy phase-outs (6.5 %). Third, the modest subsidy effect indicates successful infant-industry transition: by policy phase-out, BYD’s dependence had substantially waned. Our findings demonstrate that cost efficiency can decouple market share from profitability in technology-intensive industries.

Suggested Citation

  • Hao, Yiran & Hao, Yu, 2026. "The dynamics of competition in the Chinese electric vehicle market: Insights from BYD’s market evolution," International Journal of Industrial Organization, Elsevier, vol. 105(C).
    • Handle: RePEc:eee:indorg:v:105:y:2026:i:c:s0167718726000093
    DOI: 10.1016/j.ijindorg.2026.103256
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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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