Enabling or disrupting? Government subsidy for autonomous vehicles on the ride-hailing platform

To explore the impact of the government subsidy on ride-hailing platforms adopting autonomous vehicles (AVs), we construct a two-stage game model to capture the decisions of ride-hailing platforms offering traditional human vehicles (HVs) and novel AVs services in terms of prices, wages, and AVs fleet size. Our study proposes a two-dimensional differentiated pricing strategy where the pricing of the same service differs in the initial and mature periods of the platform's adoption of AVs, and the pricing of the two services diverges at the same period. We find that intense internal competition reduces consumer surplus in HVs and driver earnings. Under certain conditions, however, the subsidy can alleviate the cost-sharing effect, allowing consumer surplus in AVs to increase with competition, indicating that moderate competition enhances market efficiency. Moreover, when AVs cost is high, platforms would become overly dependent on the subsidy and fall into subsidy dilemma, resulting in profit shrinkage.