Promoting Electric Automobiles: Supply Chain Analysis under a Government’s Subsidy Incentive Scheme

We analyze a fuel automobile (FA) supply chain and an electric-and-fuel automobile (EA-FA) supply chain in a duopoly setting, under a government’s subsidy incentive scheme that is implemented to promote the electric automobile (EA) for the control of air pollution. Benefiting from such a scheme, each EA consumer can enjoy a subsidy from the government. We show that the incentive scheme is more effective in increasing the sales of the EA when consumers’bargaining power is stronger. The impact of the incentive scheme on consumers’net surplus is the largest among all components in the social welfare. A higher subsidy may not result in a greater reduction in the environmental hazard. Moreover, a larger number of service and charging stations can reduce the negative impact of the incentive scheme on the FA market while enhancing its positive impact on the EA market. We also compare the incentive scheme with the centralized control with no subsidy, and find that the incentive scheme is more effective in promoting the EA and protecting the environment.