Abstract

ABSTRACT Inspired by the global budget concept in health care, we propose an innovative subsidy scheme in which governments do not commit the subsidy amount in advance but determine it by the end of the subsidy period. The performance of the traditional and proposed subsidy schemes is evaluated in an oligopoly without competition, where each manufacturer decides its product quality and production quantity under the diseconomies of scale in production. Both types of schemes can take into account product quality or not. Our results show that compared to the traditional scheme, the proposed scheme drives manufacturers to reduce production quantity but improves product quality and brings them higher profits. Furthermore, the scheme results in greater social welfare when the subsidy budget is large. Finally, we conduct robustness checking by considering the market competition and absence of the diseconomies of scale, respectively. The result shows that the main findings in the basic model continue to hold, while there are additional findings. In the first scenario, as the market competition intensity increases, our proposed scheme becomes more preferable to the manufacturers and the government. In the second scenario, subsidy schemes that take product quality into account are never preferable.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.