Most consumers in rural areas of many developing countries cannot afford to purchase certain livelihood improvement products such as home appliances. To improve consumer welfare and manufacturer profit, many governments launch different types of subsidy programs that offer subsidies to consumers, manufacturers, or both. Motivated by a subsidy program developed by the Chinese government in 2007, we present a parsimonious model to determine the optimal subsidy program in different settings so as to gain a better understanding about the conditions under which it is optimal for the government to subsidize consumers only, manufacturers only, or both. Our analysis reveals that the structure of the optimal subsidy program depends on (a) whether there is a well-established market selling price for the products; and (b) the relative emphasis that the government places on consumer welfare versus manufacturer profit. Also, we find that governments can improve consumer welfare by developing subsidy programs that involve multiple (competing) manufacturers with different market sizes and adequate capacities. Our findings provide insights for developing effective government subsidy programs. The online appendix is available at https://doi.org/10.1287/msom.2017.0684 .

Regulating on-demand ride-hailing services (e.g., Uber and DiDi) requires a balance of multiple competing objectives: encouraging innovative business models (e.g., DiDi), sustaining traditional industries (e.g., taxi), creating new jobs, and reducing traffic congestion. This study is motivated by a regulatory policy implemented by the Chinese government in 2017 and a similar policy approved by the New York City Council in 2018 that regulate the “maximum” number of registered Uber/DiDi drivers. We examine the impact of these policies on the welfare of different stakeholders (i.e., consumers, taxi drivers, on-demand ride service company, and independent drivers). By analyzing a two-period dynamic game that involves these stakeholders, we find that, without government intervention, the on-demand ride service platform can drive the traditional taxi industry out of the market under certain conditions. Relative to no regulations and a complete ban policy, a carefully designed regulatory policy can strike a better balance of multiple competing objectives. Finally, if a government can reform the taxi industry by adjusting the taxi fare, then lowering the taxi fare instead of imposing a strict policy toward on-demand ride services can improve the total social welfare. This paper was accepted by Serguei Netessine, operations management.

No abstract

When donors subsidize products for sale to low-income families, they need to address who to subsidize in the supply chain and to what extent, and whether such supply chain structures as retail competition, substitutable products, and demand uncertainty matter. Academic/practical relevance: By introducing and analyzing development supply chains in which transactions are commercial but subsidies are needed for affordability, we explore different supply chain structures, with product substitution and retail competition motivated by a field study in Haiti of subsidized solarlantern supply chains. Methodology: We incorporate product substitution, retail competition, and demand uncertainty in a threeechelon supply chain model with manufacturers, retailers and consumers. This model has transactions among the donor, manufacturers, retailers and consumers as a 4-stage Stackelberg game and we solve different variations of this game by using backward induction. Results: The donor can subsidize the manufacturer, retailer or the customer, as long as the total subsidy per unit across these echelons is maintained at the optimal level. Having more product choice and having more retail-channel choice can increase the number of beneficiaries adopting the products; this increase becomes more pronounced as demand becomes more uncertain. Managerial implications: Donors must coordinate across different programs along the entire supply chain. They should look for evidence in their collective experience for more beneficiaries when subsidizing competing retailers selling diverse substitutable products.

No abstract