Pricing and Producing Green Products under Subsidy Termination and Coopetition

Previous studies discuss the role of a government's subsidy offered to consumers in reaching her green product adoption target. However, subsidies do not last forever and will terminate. Accounting for the subsidy termination and the interplay among subsidy, learning-by-doing and competition, we develop a two-period Stackelberg-Nash game between the government and the manufacturer(s). We find that the government spends less subsidy expenditure with qualified-sales rule compared to all-sales rule. Under the qualified-sales rule, each manufacturer adopts a zero-inventory strategy. In addition, he adopts a sandwiched pricing strategy: the price is dropped after the termination but at most by the subsidy amount. Intuitively, prices decrease in learning. Less intuitive is that the first-period production quantity decreases in learning. Moreover, competition acts as a substitute for subsidy. Two manufacturers may learn individually or as a group. Interestingly, under group learning, a manufacturer's total equilibrium production quantity in two periods decreases in his rival's initial cost when the cooperation through group learning outperforms the competition between the manufacturers. Besides, group learning benefits the government in all cases but not the two manufacturers and leads to win-win outcomes for the three involved parties only in particular cases. Comparing two competing manufacturers to a merged manufacturer, we find that the government may favor a monopoly to reduce her subsidy expenditure. We also consider a subsidy decline scheme and show the robustness of zero-inventory and sandwiched pricing strategies.