Is It a Strategic Move to Subsidized Consumers Instead of the Manufacturer?

Abstract

Government organizations design and offer subsidy to achieve objectives such as ensuring positive environmental externalities, stimulating sustainable product consumption, improving social welfare. Motivated by two such pragmatic subsidy policies, consumers subsidy and manufacturer subsidy, we formulate parsimonious models under centralized and decentralized settings in a three-stage game framework to obtain a fair understanding about the circumstances under which it is beneficial for the government to subsidize consumers or manufacturer. The effect of two contract mechanisms, namely revenue sharing and green-marketing effort sharing contracts are examined to explore characteristics of supply chain decisions under subsidy. Our study reveals that the effectiveness subsidy program significantly depends on the participating member's intentions to further the cooperation. We find that consumers subsidy leads to an exceptional outcomes, total profits of the supply chain is always less when supply chain members cooperate with each other compared to decentralized setting. Profits for individual decreased considerably under both contract mechanisms. Government also reduces per unit subsidy to consumers. However, subsidy to manufacturer leads to higher profits when supply chain members cooperate. Amount of government subsidy is also higher. Consumers also receive higher quality products. Furthermore, both the contract mechanisms are able to generate Pareto-efficient scenario and higher social welfare of government.