The effects of different subsidy policy modes on China’s air cargo market: The all-cargo airline and scale economies perspective

Abstract

Air cargo subsidy policies are being implemented in several Chinese provinces to promote industrial development and stimulate regional economic growth. This study explores the impact of government quantity subsidies to the airline or shippers on the air cargo market. We consider the impact of these subsidy policies from the perspectives of all-cargo airline and economies of scale. Our findings show that the subsidy provided to the airline or shippers have similar effects on air cargo quantity, airline’s profits, and social welfare. However, these subsidies influence airline’s pricing decisions differently due to different payment streams. Thus, if the government focuses on air cargo volume or airline’s profit, both the airline and shipper can benefit from the subsidy policy, although social welfare may be compromised. This analysis provides managerial insights for the government to formulate air cargo policies accordingly.