Impact of government subsidy on the optimal R&D and advertising investment in the cooperative supply chain of new energy vehicles

Government subsidy is fairly important to alleviate the funding dearth of new energy vehicles (NEVs) industry, and mainly includes production-side and consumption-side subsidies. Nevertheless, it is unclear how government makes the optimal subsidy strategy at diverse research and development (R & D) stages of NEVs, and how the cooperative NEVs supply chain makes the optimal investment in R & D and advertising. Thus, this paper adopts the Stackelberg game, Nash equilibrium and the optimal profit models to address these issues and further conducts the case study with the NEVs data of BYD in China. The results indicate that when the effectiveness of per unit of investment in R & D (alpha) and advertising (beta) in generating the sales of NEVs is lower than 0.574 in the region of 0 < alpha(2) + beta(2) < 0.33, consumption-side subsidy can better improve the investment in R & D and advertising, profits and social welfare than production-side subsidy, but when it is lower than 1.414 in the region of 1 < alpha(2) + beta(2) < 2, production-side subsidy may perform better. Meanwhile, to maximize social welfare, government pays the highest subsidy when adopting the consumption-side subsidy, followed by the subsidy for per unit production of NEVs and R & D investment, respectively. The case study further proves that the results support the practice.

Automated summary

The study finds that under certain conditions of research and development and advertising investment benefits, consumption-side subsidies can better improve the investment in research and development, advertising, profits, and social welfare in the new energy vehicles industry. Additionally, the government should prioritize consumption-side subsidies when formulating subsidy strategies and provide moderate subsidies for NEVs production and research and development investments to maximize social welfare.