Impact of Consumer Subsidy Considering Subsidy Threshold on New Energy Vehicle Firms and Environmental Benefits

Abstract

This paper investigates a competitive market consisting of two new energy vehicle (NEV) firms with a technology gap and consumers with green preferences. By employing a Hotelling model, we obtain the equilibrium outcomes of two competing firms without and with segmented consumer subsidy (SCS) following Nash game theory. We further explore the incentive effect, effective scope of SCS policy and the impacts of subsidy threshold and technology improvement on it, which fills the gap in the literature and provides managerial insights. We find that SCS can only play a role when the threshold is intermediate, and the government can expand the effective scope of subsidies by cultivating consumers’ green preferences and strengthening the intensity of subsidies. Moreover, the government can change the competitiveness and green level gap of two firms through the threshold. When threshold is small (large), increasing it can narrow (expand) the green level gap between two firms but widen (narrow) the market gap. We also find that implementing an SCS policy has a positive impact on environmental benefits and technological improvement is more likely to cause environmental damage. However, the government can effectively decrease the degree and probability of damage by raising the subsidy threshold and reducing the subsidy amount.