One of the frustrations of being an economist (aside from the whole “not knowing diddly squat about money” thing) is that we can’t run experiments the way those working in many hard sciences can. Care to test your hypothesis about what an overnight tripling of the price of gasoline would do in the US, or how the economy would handle a massive natural gas shortage? Forget it, Poindexter, you’ll have to settle for trying to simulate it on a computer and then arguing endlessly with other economists about whether your “surprising” and/or “interesting” results have revealed a Deep, Heretofore Unrecognized Truth about the US economy or simply exposed a flaw in the data or software you’re using, resulting in a political food fight that gets you dropped from the department head’s Christmas party and triggering long-running feelings of resentment and inadequacy.

But I digress.

One of the classic economics thought experiments is for a vendor to announce a schedule of price cuts for some item that traditionally has an enormous markup. Said seller tells the world on Day 1 that on Day 10 the price will drop from $1,000 to $900, on Day 20 it will drop to $800, etc. By tracking sales, the notion goes, the vendor can figure out what price s/he should charge to maximize profits, since the customers had perfect information about future prices, and only bought when they were truly comfortable with the price and didn’t care to wait any longer for a further discount. (I have some serious reservations about the value of the data one would collect via this experiment, but I won’t bother to go into that; this is just an example to illustrate the mindset.)

While waiting at a red light the other day, it occurred to me that car companies could do something quite interesting that follows the spirit of this thought experiment. Specifically, imagine that you walk into the local Bazooka Motors dealership, and inquire about buying the new Hybrid Belchfire 9000, a plug-in hybrid version of the wildly popular Belchfire 9000. The salesperson tells you that the car costs $25,000, and it includes a battery pack that provides about 10 miles of electrons-only driving range.

But wait! There’s more! The salesperson also points out after selling you the undercoating that you can add one of several sizes of supplementary battery packs, either at the time of initial car purchase or later on as a dealer-installed accessory. For an additional $2,000, you can bump the battery-only range to 20 miles, for $4,000, you can push it to 30 miles, and for $6,000 you can stretch it to 40 miles. Obviously, we would see different customers take different paths at this point. Some would be happy with the basic plug-in capability, some would want more, some (like readers of this site) would want to max out the battery range, and some would want to wait and see if their driving habits and finances would allow for a later addition of the pack.

Wouldn’t you just love to see the breakout of how many of each of the battery options Bazooka Motors sold, broken out into initial sales vs. later add-on, as well as by demographics (location, income, age, education), against the price of gasoline and electricity? Man, I’m drooling on my keyboard just thinking about it.

And imagine what not just Bazooka Motors, but all the other car companies would be able to do with that data.

Just to be clear, I’ve heard not so much as a rumor of any car company, fictional or otherwise, doing something like this. But I’d bet that it would be pretty simple and relatively cheap for a car company to try this with one car model. And it would answer a lot of questions about how people feel about plug-ins, and give both the customers and the car company the flexibility to bump up the battery capability as batteries declined in price and/or gasoline rose in price.

On a related note, consider this comment over at AutoblogGreen about the so-cute-it-makes-your-teeth-hurt Toyota iQ:

Although gasoline prices have remained under $3 a gallon around these parts recently, the price of crude is still climbing and reaching $90 a barrel. Toyota US executive VP for Sales Jim Lentz commented that the iQ concept is something that might work in the US market. It’s probably safe to assume that everyone in the business will be closely watching the sales of the Smart ForTwo after its US launch in January. If it takes off, cars like the iQ and Volkswagen up! (hopefully with a different name) will probably get the green light.

Every company’s actions are a market test case for every competing company. If one of them gets a hit with something, you can bet your Internet connection that others will jump on the bandwagon like so many Hollywood or network TV execs playing follow the leader.

One more riff on that theme comes from Mitsubishi to Launch i MiEV in 2009, Nissan to Launch EVs in 2012:

Mitsubishi Motors Corp plans to launch its i-MiEV all-electric compact car in 2009, a year ahead of schedule, according to company president Osamu Masuko.

Separately, Carlos Ghosn, CEO of Nissan Motor Co and Renault SA, said that his auto group is planning to mass produce an electric car mainly targeted at big cities by 2012.

I note that while necessity is the mother of invention, desperation is the mother of action. I’ve been saying for some time that what we needed was one of the major car companies to be desperate enough to take the leap into EV’s, to embrace a highly disruptive technology. Mitsu has been talking for some time about doing this–originally (still?) it was to be a Colt EV in 2010–and their publicly announced plans seem to have only become more aggressive.

And that, in turn, brings up another thing I’ve been meaning to, well, bring up: The chunkiness of economic change. Economists like to do everything with smooth curves (get your head out of the gutter, people), and gloss over the fits and starts of large-scale changes in markets. Often enough this is a harmless and quite useful simplification. When you’re talking about people trading stocks (the classic example of “the closest thing we have to perfect competition”) or other markets with a very large number of both buyers and sellers executing transactions with floating prices, approximating discrete (if sometimes indiscreet) actions with a continuum works just peachy.

But when we’re talking about a classic oligopoly (small number of large sellers), like the car business, then things get weird. In general, we can say that as the price of gasoline rises we’ll see more fuel efficient offerings, something that’s clearly going on right now. But it takes time, time for the car companies to become convinced that the increase in gasoline prices is long-lived enough to shift customer buying patterns, time for the car companies to modify and market new designs, time for the companies to make enough profits on those new models to pay back the enormous design and retooling costs. In other words, car companies have to be really sure that gasoline prices won’t plummet in 6 or 12 or 24 months before they’ll make a major shift in their product lineup. But they’re doing it, which tells you everything you need to know about what they’ve concluded about the oil situation.

And they can’t possibly downsize or re-engineer every single model at once, so we see GM talking to everyone who will listen about the Volt even while they continue to run countless TV ads for their “GMC Truck Month” campaign (coming soon to a Hallmark greeting card store near you) in which they try to sell as many trucks to people who don’t really need them as possible.

Is it the behavior we would like to see? No. Is it logical and consistent? Yes. Is it our job to give all the car companies an incentive to push harder and faster on making their product lines more fuel efficient? If you have to ask, then you just haven’t been reading this site long enough…