Subsidy policy design for low-carbon products considering production and pricing competition

Abstract

Government subsidy plays a crucial role in addressing the funding shortfall of low-carbon technology. This paper establishes a three-stage dynamic game model to investigate the interplay between the design of government subsidy policies and the low-carbon technology selection of two competing manufacturers. The government acts as a leader, strategically allocating subsidies for low-carbon product manufacturers and consumers. The two manufacturers, positioned as followers, make independent decisions regarding the technology they adopt for production and sales. We analytically deduce the equilibrium solutions and conduct numerical experiments to investigate the impact of crucial factors on the economy and environment. The results indicate that an increase in the investment cost for low-carbon technology induces the government to enhance not only the total subsidy amount but also the proportion directly allocated to consumers. Moreover, the manufacturers’ technology selection exhibits a dynamic response to government subsidies. As the subsidy amount increases, the two manufacturers change from both choosing conventional technology to low-carbon technology, which is independent of the recipients of the government subsidy. Interestingly, we find that the two manufacturers may fall into a prisoner’s dilemma regardless of the technology they choose. Adopting low-carbon technology is not always beneficial to the environment, especially when the output of low-carbon products is relatively high.