Highlights Two types of subsidies are investigated respectively in monopoly and competitive case. The government subsidy strategy depends on the external price, the supplier’s capacity, and the competitive intensity. Mode M (manufacturer subsidy) is superior to Mode S (supplier subsidy). The hybrid subsidy mode is not superior to a single subsidy mode. The social welfare in the competitive case is not worse than that of in the monopoly case under certain conditions.
Abstract To prevent supply a disruption caused by capacity constraints and outside options, the government needs to offer subsidies. The following two types of subsidies are investigated: subsidies to the supplier (Mode S) and subsidies to the manufacturers (Mode M). Our analysis reveals that government subsidy strategies depend on the size of the external price and the capacity. Interestingly, Mode M (manufacturer subsidy) is superior to Mode S (supplier subsidy). Moreover, subsidizing both the supplier and manufacturers simultaneously is not superior to a single subsidy mode. Furthermore, the social welfare in the competitive case is not worse than that in the monopoly case under certain conditions. However, neither subsidy mode can prevent supply disruptions under scenarios of higher intensity of competition.
Government subsidies for preventing supply disruption when the supplier has an outside option under competition
2020-12-28
Article (Journal)
Electronic Resource
English
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