A game theoretic approach for analyzing electric and gasoline-based vehicles’ competition in a supply chain under government sustainable strategies: A case study of South Korea

Abstract

This study investigates the issue of electric vehicle (EV) pricing, as well as the issue of determining the extent of electric vehicles' technological improvements on gasoline vehicles (GVs). Furthermore, it looks at four important goals in line with government sustainability plans including the number of EVs, CO2 emissions reduction (ER), revenue seeking (RS), and customer surplus (CS). Two strategies, including a tax optimization strategy (TO-strategy) and a subsidy optimization strategy (SO-strategy), are suggested in this study as ways to reach the four goals by finding optimum values for four decision variables. Two decision variables of the TO-strategy are the determinations of a GV and gasoline taxes. SO-strategy decision variables are the determinations of a manufacturer and consumer subsidies. The cooperation of government in R&D expenditures is considered as a manufacturer subsidy. The EV manufacturer will optimize research and development efforts to improve the level of EV technology and the government will optimize its share of cooperation in expenditure of the manufacturer's R&D programs. The problem under study is solved by a backward induction procedure. The obtained results are challenging and are not straightforward. For instance, if the government seeks to maximize the number of EVs, or wants to minimize pollution, or maximize revenue, it should consider a tax optimization strategy. Under the TO-strategy, if the government has RS or CS goals, the government must increase the GV tax and decrease the fuel tax. Under the SO-strategy, the government must increase its manufacturer subsidy and decrease its customer subsidy.