Subsidy Contract Research Articles

Coordination contract design for a two‐echelon supply chain considering risk aversion and yield uncertainties

AbstractThis study establishes a two‐echelon supply chain (SC) wherein the supplier and the manufacturer suffer from yield uncertainty, and the supplier has a risk‐averse attitude. The SC members’ optimal input quantity and order quantity are investigated. On this basis, the revenue‐sharing and subsidy contracts are introduced to achieve SC coordination. The findings indicate that the two contracts are valid on SC coordination, and there exists a one‐to‐one relationship between these two contracts. Moreover, the two contracts can achieve the same utility allocation between the SC members under specific conditions. Overall, our findings help the SC members develop more efficient cooperation mechanisms.

Optimal pricing and patient satisfaction optimization for healthcare providers

The importance of health systems for societies makes it necessary to examine them from a scientific perspective and improve healthcare. Healthcare service prices determine patients' decisions, so setting them correctly is crucial to creating balance in the system. In this research, we propose a bi-level model that includes private providers and the government to suggest optimal prices for healthcare services. The pricing method is suggested based on service quality and patient waiting time, and patients are categorized in two ways: 1) by the severity of their disease and the urgency of their condition, and 2) by their income and sensitivity to service prices. We aim to maximize service providers' profit at an optimal price while maximizing patient satisfaction. To achieve maximum patient utility, the government proposes contracts that increase overall societal utility. This research proposes and compares four cases: non-contract, cost-sharing contract, subsidy contract, and differentiated subsidy contract. Based on Stackelberg's game theory, we consider the government the leader and the private service provider the follower. Numerical results of the research show that the cost-sharing contract allocates support to all patients in society, but it does not achieve significant utility for the whole society, despite covering more patients. The subsidy contract allocates a more significant amount of subsidy to fewer patients and covers only those with an urgent condition. Differentiated subsidy contracts allocate subsidies according to price-sensitive groups, resulting in better use of budget expenditures. The managerial insight of this research, leads managers to consider contracts.

Subsidization of public transit service under double moral hazard

This paper aims to explore incentive issues and characteristics of optimal contract schemes for subsidizing public transit services under double moral hazard, which refers to situations where both the regulator and the operator face incentives to engage in opportunistic behavior due to information asymmetry in the provision of public transit service. This specific aspect of the regulator-operator interrelationship has not been thoroughly investigated in the existing literature. To address this gap, we utilize principal-agent theory and develop a non-cooperative game-theoretic model to analyze the relationship between the regulator (the principal) and the operator (the agent). Through backward induction, we examine the first-best equilibrium (without moral hazard) and second-best equilibrium (under double moral hazard) solutions. Numerical analysis based on a linear contract reveals some key characteristics of the optimal subsidy contract arrangements. Our findings reveal that under double moral hazard, both the regulator and the operator only exert their second-best efforts. The result analysis shows that while higher incentives can reduce the effort required by the regulator, they can also induce the operator to work harder. The marginal effort utilities of the two parties have distinct impacts on determining the optimal sharing rule. Furthermore, we illustrate how the interaction dynamics of the efforts exerted by the two involved parties vary with the sharing rule. Our study extends the current literature by shedding light on the optimal incentive arrangements and contractual requirements for public transport subsidy contracts when considering the double moral hazard issue.

Network revenue management game in the railway industry: Stackelberg equilibrium, global optimality, and mechanism design

Many countries have adopted the vertical separation governance structure in the railway freight industry over the past decades. Under this governance structure, an Infrastructure Manager (IM), which might be an independent company or a government agency, sells train itineraries to Freight Operating Companies (FOCs). After purchasing the itineraries, a FOC will have the rights to run trains on the designated paths at the designated times and thus can provide transport service to shippers. In the process, an IM needs to determine a list of prices for their train itineraries; and a FOC needs to determine which train itineraries to purchase to serve uncertain customer demands based on the IM's price list. This study considers the interaction between an IM and a FOC as a network-based Stackelberg game. Our study first formulates a bi-level optimisation model to determine the equilibrium prices that the IM would charge to maximise its own profits unilaterally without collaboration. A method involving gradient and local search has been developed to solve the bi-level model. Secondly, an inverse optimisation model is proposed to determine the prices leading to global optimality. A Fenchel cutting plane-based algorithm is developed to solve the inverse optimisation model. Thirdly, a subsidy contract is designed for the game to coordinate the players’ decisions. A two-layer gradient search method is developed to determine the optimal subsidy rate. Numerical cases based on the UK rail freight industry data are provided to validate the models and algorithms.

The fuel cell electric vehicle market growth: Analyses of contracts and government incentives

Climate change has emerged as one of the most challenging problems facing the world. Due to the greenhouse gas emissions of gasoline and diesel-powered vehicles, automakers have introduced more eco-friendly products, such as fuel cell electric vehicles (FCEVs). However, despite government policies and collaborations, the market share of FCEVs is far below the target level. Hence, this paper focuses on the FCEV market growth and analyzes the effects of contracts and government incentives. The fuel price (FP) and supplementary subsidy (SS) contracts are developed for collaborating a hydrogen supplier and automaker framework. Furthermore, four different government incentives are examined. The results imply that incentives supporting the capital costs are more effective in the startup phase to increase the number of companies entering the market and accelerate to reach a target market size. On the other hand, consumer-oriented and operating cost-based incentives are more capable of market demand enhancement and growth. Only the tax credit of 8,000 USD generates higher market demand and annual profits than the contracts in some cases, and both contracts dominate all the other incentives. Hence, depending solely on government incentives will not be enough for market growth, and it will take ages to reach a target market size without contracts. The stakeholders with sufficient initial capital can prefer the FP contract to achieve the highest market demand and annual profits. If the stakeholders have less capital, they can apply the SS contract to earn higher profits per investment. Both contracts are strict Pareto improving and fair.

Entry game in supply chains with yield uncertainty

<p style="text-indent:20px;">Yield uncertainty presents great challenges to supply chain management, which affects market supply and thus the profits of all the supply chain parties. In the context of a supply chain comprising a retailer and multiple potential suppliers with random yields, we examine the impact of yield uncertainty on the suppliers' entry decisions, and how it affects the retailer's profit and consumer surplus. We find that yield uncertainty initially increases the number of suppliers entering the market, then decreases, and it is negatively correlated with consumer surplus. We also analyze how the retailer's purchasing price strategy influences the suppliers' decisions to enter the market. We find that retailer subsidies can improve the performance of and coordinate the supply chain. In addition, the subsidy contract is in the forms of production subsidy and surplus subsidy when the suppliers do not make and make production decisions, respectively.</p>

A monopolistic supply chain model under price threshold government subsidy contract

Utility of efficient automobiles has compelled us to explore various aspect of its promotion. Our manuscript analyzes a monopolistic automobile manufacturer trying to produce efficient vehicles along with traditional vehicles. A utility-based dynamic production design has been studied under price-dependent subsidy (PDS) model to explore the effects of government subsidy on manufacturing of Battery-operated vehicles (BOV) and Diesel vehicles (DV). We have compared the PDS mechanism under two sustainable and green strategies namely, BOV socially responsible (BSR) strategy and DV energy reduction (DER) strategy to bring out the best possible channel dynamics that can optimize its gross profit margins. We speculated that an increase in threshold price has positive impacts under BSR and DER strategies. However we found numerically and analytically that, even under subsidized BOV's, energy efficient DV's are still in much demand. Our study compels us to explore three different cost cases and the best possible optimal variant has been numerically established. We note that BSR strategy holds good in some circumstances while DER strategy rules in other. Our findings have been illustrated graphically by using real-life scenarios to validate our models.

Revenue sharing or not? Coordination of the buy‐online‐and‐pickup‐in‐store supply chain

AbstractWhile there is much research on coordinating the dual‐channel supply chain using the revenue‐sharing contract, it is unclear if there is a better mechanism design in the buy‐online‐and‐pickup‐in‐store (BOPS) mode. In this channel integration environment, the customer service provided by the bricks‐and‐mortar store is critical to the chain's success. Based on a stackable game model, we analyze the contract methods for the cases of revenue sharing and no revenue sharing, where the latter is classified into two types: All the credit goes to the offline or online channel. Focusing on improving consumer service and supply chain performance in the BOPS mode, we observe that revenue sharing is not necessarily the best contract type, while the non‐revenue‐sharing contract of a lump‐sum subsidy plus quantity discount can coordinate the supply chain. We also analyze the impacts of some endogenous parameters and derive the conditions for the equilibrium outcomes. We find that revenue sharing cannot effectively stimulate the offline channel to improve its service effort as the offline channel is more concerned about service cost sharing than revenue sharing. The results are similar to those of revenue allocation to the online or offline channel in the BOPS mode, but the conditions are slightly different. Conducting numerical studies to gain insights from the analytical findings, we find that the subsidy contract is better than the revenue‐sharing approach under various market conditions.

Decision optimization in cooperation innovation: the impact of big data analytics capability and cooperative modes.

Data-driven innovation enables firms to design products that are more responsive to market needs, which greatly reduces the risk of innovation. Customer data in the same supply chain has certain commonality, but data separation makes it difficult to maximize data value. The selection of an appropriate mode for cooperation innovation should be based on the particular big data analytics capability of the firms. This paper focuses on the influence of big data analytics capability on the choice of cooperation mode, and the influence of their matching relationship on cooperation performance. Specifically, using game-theoretic models, we discuss two cooperation modes, data analytics is implemented individually (i.e., loose cooperation) by either firm, or jointly (tight cooperation) by both firms, and further discuss the addition of coordination contracts under the loose mode. Several important conclusions are obtained. Firstly, both firms’ big data capability have positive effects on the selection of tight cooperation mode. Secondly, with the improvement of big data capability, the firms’ innovative performance gaps between loose and tight mode will increase significantly. Finally, when the capability meet certain condition, the cost subsidy contract can alleviate the gap between the two cooperative models.

Dynamic Differential Game Strategy of the Energy Big Data Ecosystem Considering Technological Innovation

This study discusses how to create strategic value through energy big data and how to promote stakeholder interaction mechanisms in the evolution of the energy big data ecosystem. We use differential game methods to study the interaction between one power grid enterprise (PG) and one technology supplier (TS) under three different cost-sharing contracts: without cost-sharing contract, cost-sharing contract, and two-way subsidy contract. The effectiveness of the dynamic equilibrium strategies under different contracts is verified via numerical simulations. The results show that under the centralized decision scenario, the technological innovation investment, the degree of technological advancement of PG and TS, and the total profit of the supply chain system are superior to the decentralized decision scenario. The extent of TS technology innovation investment depends on the share rate of PG. Technology innovation investment and the profits of energy big data service supply chain stakeholders will increase with the sensitivity coefficient of technological advancement. Compared with contracts without cost-sharing and with cost-sharing, the two-way subsidy contract can provide the Pareto optimal solution for the investment trajectory of technological innovation and long-term profits. Theoretically, this study reveals a new perspective in the research on the relationship between power grid enterprises and technology suppliers under dynamic technology innovation. In practice, this study facilitates power grid enterprises and technology suppliers to form a closer cooperative relationship in the energy big data ecosystem. More importantly, it is helpful for power grid enterprises to make optimal transaction decisions at different stages of energy big data ecosystem evolution.

A game theoretic model for cellular network operators’ cooperation under government intervention

In the digital world today, cellular networks and their operators play a competitive and important role in communications. The bases of the competition of operators are the quality of provided services and the coverage level of their antennas, thereby attract customers. This paper studies cellular networks with two old and new operators and under the influence of government intervention in one area. Due to the high cost of building an antenna, the new operator participates in the cost of the infrastructure of the old operator to use the services of these antennas for their customers. On the other hand, the government considers incentive schemes to support mobile operators. The government plans to take part in the infrastructure costs of the old operator, and will receive the income tax from it. Hence, the new operator will go off from paying tax. The government subsidy contract with the old operator is based on the coverage level of the antenna and supports the operator to increase the coverage level. By doing so, the quality level of services and coverage development rate for the old operator increases, leading to increased demand and increased profits for this operator. On the other hand, as government support increases the demand for the old operator, the demand for the new operator decreases and the profit of the new operator decreases. Some numerical examples for Iranian telecommunication companies are applied to examine the applicability of the proposed models. Finally, sensitivity analysis on the main parameters is analyzed in-depth to extract some managerial implications.

An examination of child care provider participation in state subsidy contract systems

Under the Child Care and Development Block Grant Act of 2014, the federal government requires that states build their supply of high quality child care and ensure that subsidy-receiving children have equal access to care. While the majority of states use child care vouchers as their primary or only subsidy mechanism, federal policy encourages states to directly contract with child care providers for subsidized slots as a strategy to promote quality and access to care, particularly for underserved populations. However, little is known about the characteristics of providers that participate in contracts or the factors that hinder or facilitate their participation. This study seeks to identify correlates of provider participation in contracts versus vouchers using administrative data on licensed center-based child care providers participating in Massachusetts’ subsidy system. The study finds that while centers that are members of umbrella organizations or are accredited are more likely to participate in contracts compared to vouchers only, centers that are for-profit organizations or located in communities with higher median household incomes are less likely to participate in contracts. No evidence is found to suggest that a larger gap between centers’ private pay prices and the subsidy reimbursement rate influences their participation in contracts. These results suggest that higher administrative capacity or mission-driven providers are more likely to participate in contracts and that contracted slots are likely to be available in low-income areas, which can help to improve access to care for low-income families.

On the vaccine supply chain coordination under subsidy contract

In this paper, we analyze the vaccine supply chain of child immunization program of India under stochastic production yield. We show that the wholesale price contract cannot achieve channel coordination. We propose a subsidy contract to coordinate the vaccine supply chain. A case analysis in the Indian context is presented to illustrate the impact of the proposed subsidy contract.

The impact of insufficient cash flow on payment term and supply chain contracts

ABSTRACT Payment term is an essential part of contract in a supply chain. We consider a supply chain with a retailer who moves first to choose one of three payment terms, e.g. ‘early payment’ (EP), ‘delayed payment’ (DP) and ‘punctual payment’ (PP) and a manufacturer who may have a preference conflict on the payment term with the retailer. Analysing with a sufficient cash flow as a benchmark, strategic impact of insufficient cash flow on payment term and supply chain contracts is investigated to mitigate the conflict. Our study shows that the retailer with cash constraint moves from EP to DP when the initial cash is very small, otherwise holds EP either by borrowing a bank loan with a large wholesale price or using up all initial cash with a small wholesale price. Moreover, a subsidy contract with large wholesale price under the retailer’s cash constraint absolutely mitigates the payment preference conflict, while the revenue-sharing contract with small wholesale price may be effective. Moreover, under the manufacturer’s cash constraint, the retailer is better off under EP, while the manufacturer prefers DP with (without) bank credit related to a small (larger) interest rate when wholesale price is small, then prefers EP as cash flow decreases. Furthermore, the revenue-sharing contract is more effective.

Cross-brand and cross-channel advertising strategies in a dual-channel supply chain

The economic value of private brands and online marketing channel have been widely recognized in literature and practical life. Besides, studies show that advertising, as one of the major factors, can affect consumer attitudes and has significant effects on demand and profit. On the existing basis, this paper analyzes the advertising strategies under competition between a national brand manufacturer and a retailer with private brand, where the national brand can be sold both through a direct channel and a store channel but the retailer brand can be sold only through a store channel. We study the best advertising investment strategies and the balanced profits of the national brand manufacturer and retailer in the disintegrated system and the integrated system. Specially, in the disintegrated system, we discuss the best decision-making issues for national brand manufacturer and retailer in two special cases which there is only have brand competition or channel spillover effects. We discuss the impacts of the spillover effect and brand competition on the chain members and advertising strategies of different channels. In addition, we design a unilateral advertising subsidy contract to coordinate the supply chain. The results in this paper offer structural and quantitative insights into the interplay between the manufacturer and retailer in the dual channel supply chain and can be used as a reference for choosing the optimal advertising strategy.

Removing barriers for grocery stores: O2O platform and self-scheduling delivery capacity

An O2O (Online-to-Offline) channel has advantages over brick-and-mortar retailing and traditional e-commerce in the local market as it facilitates grocery retailers to offer online retailing and offline home delivery. This paper studies how an O2O platform can attract physical (offline) grocery retailers through pricing and market expansion, and customers by providing shopping convenience and home-delivery. We analyze both when the O2O platform has self-scheduling delivery capacity and when it does not. We find that two widely used pricing schemes—revenue sharing and fixed fee—are equivalent. If the O2O platform does not itself have any self-scheduling delivery capacity, it outsources home-delivery service to a delivery platform, which may result in incentive misalignment. We find that it is not always necessary for the O2O platform to coordinate the decentralized system. Under some conditions, the decentralized system will yield higher profit than the centralized system due to the risk protection effect. If coordination is needed, we propose subsidy contracts for the O2O platform to align its and the delivery platform’s objectives.

Preserving relational contract stability of fresh agricultural product supply chains

<p style='text-indent:20px;'>Since agricultural cooperatives have developed rapidly under the farmland transfer policy in China, they play an important role in the new operation pattern for China's fresh agricultural product supply chains. To enhance current agricultural supply chains' stability, we consider a three-level (farmer-cooperative-retailer) fresh agricultural product supply chain, conduct quantitative analysis of the impact of the quantity flexibility contract, and compare the impact of the relational contract with that of the quantity flexibility contract on the freshness and the profit. Our results show that a suitable relational contract can improve the freshness and increase the profit of the three-level supply chain, but cannot fully guarantee its stability. Furthermore, the government's subsidy policy can improve the relational contract stability of the fresh agricultural product supply chain by providing the protection price contract mechanism of the agricultural product and the cold chain facility subsidy contract.

Sales Effort and Coordination in an O2O Supply Chain with Two-Period of Marketing

O2O supply chain has been a hot issue worldwide in recent years. This paper studies a two-period marketing problem in an O2O supply chain consisting of a manufacturer and an offline retailer. Besides the offline channel, the manufacturer owns an online channel which markets to the online customers and directs potential customers to the offline retailer. The retailer provides service for both the offline customers and the directed customers from online channel. The centralized and decentralized settings are both analyzed. The sales effort level of the retailer is higher than that of the manufacturer under centralized setting. The service levels of both retailer and manufacturer and supply chain profit under the decentralized setting are lower than that of the centralized setting. This paper finds that a two-way subsidy contract can fully coordinate the supply chain.

Design of Incentive Contract for Technological Innovation of New Energy Vehicles with Asymmetric Information.

The improvement of China’s new energy automobile technology is one of the most pressing issues for the government and manufacturers, given that the existing new energy automobile subsidy policy is about to be withdrawn completely. Considering that the manufacturer has the private information of the initial technology level of new energy vehicles, its technology can be improved by means of technological innovation. Using principal–agent and regulation theory, this paper studies how the government designs incentive contracts to motivate manufacturers to strive to upgrade new energy automotive technology. The study has obtained a quantitative incentive contract under full information and a quantitative screening contract with asymmetric information, which provides an effective reference for the design of government subsidy contracts. It was found that the existence of asymmetric information reduces the expected net utility of the government in incentive projects, and the technology upgrading of low-level manufacturers is insufficient, but will not affect the technology upgrading of high-level manufacturers who will get information rent. The conclusion has good reference value and guiding significance for government policy-making with asymmetric information.

Coordination through cooperative advertising in a two-period consumer electronics supply chain

Firms in the consumer electronics industry frequently launch new styles of their products, which leads to a “two-period” phenomenon in their product sales. Only a few published articles have considered two-period models in cooperative advertising. This paper investigates co-op advertising strategies in a two-period supply chain consisting of a single manufacturer and a single retailer. Utilizing game theory, we consider two different scenarios: a decentralized scenario with a cooperative advertising program and an integrated scenario. Aside from these scenarios, we propose a supply chain contract to coordinate this supply chain system. This paper has the following conclusions: (i) the manufacturer usually does not provide the same advertising subsidy strategy for the two generation products in the same period; (ii) the manufacturer may provide a low subsidy rate to the retailer if the advertising long-term effect is strong; and (iii) we demonstrate that the two-way subsidy contract can achieve a perfect supply chain coordination if a transfer payment exists.