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Competitive Responses to Corporate Average Fuel Economy Standards

Corporate Average Fuel Economy (CAFE) standards were originally enacted to decrease oil and energy dependence of the United States on oil exporting countries and to stabilize oil and energy prices. Today, CAFE is offered as a policy tool for addressing many concerns including energy conservation, energy security, global climate, and air quality. Recent policy discussions about increasing CAFE standards have focused on the fuel efficiencies of light trucks, given that passenger car standards and are generally considered acceptable.

This paper concentrates on the possible strategic behaviors of the key players in the CAFE Game, who will be impacted by an increase in CAFE standards or the maintenance of current standards. These players include domestic and non-domestic automakers with concentration on light trucks, non-domestic automakers with concentration on passenger cars, and the government. By applying a game theoretical model of CAFE, this paper focuses on these key players and their actions and strategies in the game.

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