Innovative subsidy schemes under a limited budget: how and when do they matter

ABSTRACT

Inspired by the global budget concept in health care, we propose an innovative subsidy scheme in which governments do not commit the subsidy amount in advance but determine it by the end of the subsidy period. The performance of the traditional and proposed subsidy schemes is evaluated in an oligopoly without competition, where each manufacturer decides its product quality and production quantity under the diseconomies of scale in production. Both types of schemes can take into account product quality or not. Our results show that compared to the traditional scheme, the proposed scheme drives manufacturers to reduce production quantity but improves product quality and brings them higher profits. Furthermore, the scheme results in greater social welfare when the subsidy budget is large. Finally, we conduct robustness checking by considering the market competition and absence of the diseconomies of scale, respectively. The result shows that the main findings in the basic model continue to hold, while there are additional findings. In the first scenario, as the market competition intensity increases, our proposed scheme becomes more preferable to the manufacturers and the government. In the second scenario, subsidy schemes that take product quality into account are never preferable.

KEYWORDS:

• Supply chain management
• subsidy scheme
• budget
• sustainable operations management
• oligopolistic competition

Acknowledgments

The authors greatly appreciate the comments of the editor and the referees, which were very helpful in improving the paper. Weixiang Huang serves as the corresponding author.

Data availability statement

Data sharing is not applicable to this article as no new data were created or analysed in this study.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Notes

1 https://www.sohu.com/a/206417605_689090

2 https://www.solar.vic.gov.au/solar-panel-rebate

3 http://www.xiangcun.com/news/show-4164.html

4 https://worldakkam.com/the-senate-will-pass-a-bill-to-fill-the-tip-shortage-and-compete-with-china-whats-in-it/840585

5 https://www.nippon.com/en/news/kd910390119807221760

6 https://apply-for-innovation-funding.service.gov.uk/competition/279/overview

7 http://www.linyang.com/news/industry/21207.html

8 https://bizfluent.com/info-8149985-global-budget.html

9 https://www.masterclass.com/articles/diseconomies-of-scale#4gZwIpXDsIBeuqaRGlG1Zm

10 It can be shown that the equilibrium outcomes are same when the subsidy is provided to the manufacturers or consumers in our setting.

11 For ease of exposition, we provide the expression of the thresholds in the proof for the results in the remainder of this paper.

Additional information

Funding

W. Zhou was supported by the National Natural Science Foundation of China [Grant no. 71925002, 72321001]. The corresponding author, W. Huang, acknowledges the support from the National Natural Science Foundation of China [Grant no. 72271098] and the Basic and Applied Basic Research Fund of Guangdong Province [Grant no. 2022A1515011983].

Notes on contributors

Wenhui Zhou

Dr. Wenhui Zhou is a professor at the School of Business Administration, South China University of Technology. His research interests mainly include smart supply chain management, big data analysis, operations management, and quality management. His research has been published in journals such as Management Science, Production and Operations Management, European Journal of Operational Research, Omega, Decision Sciences, and International Journal of Production Research, etc.

Haiping Zhang

Haiping Zhang is a Ph.D. candidate at the School of Business Administration, South China University of Technology. His research interests mainly focus on operations management, including sustainable supply chains and content service platforms. He has published papers in International Journal of Production Research and Computers & Industrial Engineering.

Weixiang Huang

Dr. Weixiang Huang is an associate professor at the School of Business Administration, South China University of Technology (SCUT). He received his B.S. and M.S. in Industrial Engineering from SCUT and his Ph.D. in Management Science from the City University of Hong Kong. His main research area is operations management, with a particular interest in sustainable operations, service systems, and the interface with marketing. His papers have been published in journals such as Management Science, Production and Operations Management, Omega, European Journal of Operational Research, International Journal of Production Research, etc.