Qualifying for a government’s scrappage program to stimulate consumers’ trade-in transactions? Analysis of an automobile supply chain involving a manufacturer and a retailer

Huang, Jian; Leng, Mingming; Liang, Liping; Luo, Chunlin

doi:10.1016/j.ejor.2014.05.012

Cited by 32 publications

(17 citation statements)

References 47 publications

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“…For example, Huang et al. (2014) investigated an automobile scrappage program and focused on the interaction between two policy levers, that is, a fixed per unit subsidy to consumers and a retail price cutoff level that manufacturers need to meet for their products to qualify. Zhu et al.…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal Subsidy Schemes and Budget Allocations for Government‐Subsidized Trade‐in Programs

Bai

Gui

et al. 2021

Production and Operations Management

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Applications of government subsidies to speed up consumer trade‐ins of used products can be commonly observed in practice. This study investigates the design of such trade‐in subsidy programs and aims to provide implementable insights for practice. In particular, we focus on two open problems in the literature, (i) how to optimally allocate the subsidy budget among the multiple products covered by the trade‐in program, and (ii) how to most effectively utilize the assigned budget to incentivize consumer trade‐ins for each product. We develop a three‐stage Stackelberg game model that captures the essence of the interaction between the government's subsidy decision, the manufacturer's trade‐in rebate decision, and the consumer's product replacement decision. We show that a sharing subsidy scheme under which the government subsidy is proportional to the manufacturer's rebate is more effective in encouraging consumer trade‐ins than fixed‐amount subsidies. Moreover, a product with a higher environmental impact, a larger market size, a longer lifespan, or a lower value to consumers typically demands a larger subsidy budget allocation. We further use our results to derive a simple proportional budget allocation rule that can provide robust and near‐optimal performance. We illustrate our results by a case study based on the “old‐for‐new" program in China that subsidizes home appliance trade‐ins. Our results indicate that policy makers should pay attention to the correlation between government subsidies and manufacturer's rebate as well as key product and market characteristics when designing a subsidy scheme for trade‐in programs.

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Section: Literature Reviewmentioning

confidence: 99%

Optimal Subsidy Schemes and Budget Allocations for Government‐Subsidized Trade‐in Programs

Bai

Gui

et al. 2021

Production and Operations Management

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“…They indicated that the consumption subsidy benefits both primary consumers and replacement consumers. Huang, Leng, Liang, and Luo (2014) investigated the conditions under which the manufacturer in an automobile supply chain has a motive to be eligible for a "scrappage" program considering the cutoff level of the suggested retail price of the manufacturer and the government subsidy. Recently, Xiao (2017) considered the case in which the old products are collected through trade-ins and remanufactured by the initiator of exchange-old-for-new program and sold to the second-hand market.…”

Section: Related Literaturementioning

confidence: 99%

Upstream or Downstream: Who Should Provide Trade‐in Services in Dyadic Supply Chains?*

Tang

Ding

et al. 2020

Decision Sciences

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As observed in real-world practices, trade-ins can be offered by either the manufacturer or the retailer. The party offering the trade-in program faces the trade-off between the fixed trade-in cost incurred and the additional revenue generated. By conducting a game-theoretic study, we analytically explore in this article the optimal choice of tradein provider in a dyadic supply chain with a single manufacturer and a single retailer. We show that the trade-in models can bear a much higher manufacturing cost and induce a higher new product sale than the benchmark case without trade-ins. It is possible that both the manufacturer and retailer prefer to undertake the trade-in program, which would lead to a conflict; or both firms prefer to be a free rider instead of being the trade-in provider, which would fall into a prisoner's dilemma. Moreover, the powerful manufacturer has an incentive to delegate the trade-in service to the retailer when facing a higher fixed trade-in cost, but the delegation option is always worse off for the retailer compared to the scenario in which the retailer provides trade-ins by herself. We also show that the trade-in scenarios always benefit the environment and consumers of the replacement segment, but hurt the primary segment consumers. The social welfare would actually be higher in the scenarios with trade-ins if the fixed trade-in cost is relatively low and the residual value of old products is relatively high. [

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“…Previous studies addressed the effects of subsidy policies of the government using game theory [7][8][9][10][11][12][13][14][15][16][17][18][19][20][21][22]. Despite the availability of these studies, only a few published articles explored the efficienci-es of subsidy policies of the government using game theory.…”

Section: Introductionmentioning

confidence: 99%

“…Luo et al (2014) studied an automobile supply chain that consists of a manufacturer and a retailer, and investigated the effects of the government's price-discount incentive scheme on the decision making of supply chain member [9]. Huang et al (2014) explored the effects of the government's scrappage program on the optimal decisions of all players' (i.e., government, manufacturer, and retailer); the results show that a scrappage program with a sufficiently large MSRP cutoff level and proper subsidy can efficiently promote sales [10]. Zhang (2014) evaluated the effects of consumer trade-offs and government subsidies on EV production decisions [11].…”

Section: Literature Reviewmentioning

confidence: 99%

Analysis of Supply Chain under Different Subsidy Policies of the Government

Guo

et al. 2016

Sustainability

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Abstract:The increasing public attention on green products prompted firms and government to focus on the design and manufacturing of these products. This study focuses on a supply chain system that consists of three members, namely, supplier, manufacturer, and government, and then investigates the effects of government subsidies on social welfare and the profits of supply chain members. We utilize game and optimization theories to calculate and compare the optimal decisions and profits of players in the following scenarios: (i) the government provides a subsidy rate to the cost of manufacturer's greenness efforts (first subsidy policy); and (ii) the government grants a per unit subsidy to the manufacturer for the demand for green product (second subsidy policy). We also derive the necessary condition for the most effective subsidy policy that maximizes expected social welfare and profits. Our analysis derives the following findings: (i) under the first subsidy policy, the government tends to provide high subsidy rate to a manufacturer with low marginal profit; (ii) under the second subsidy policy, the government tends to offer low subsidy to a manufacturer with low marginal profit; and (iii) a government's selection of subsidy policy depends on the sensitivity of consumers to price.

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Qualifying for a government’s scrappage program to stimulate consumers’ trade-in transactions? Analysis of an automobile supply chain involving a manufacturer and a retailer

Cited by 32 publications

References 47 publications

Optimal Subsidy Schemes and Budget Allocations for Government‐Subsidized Trade‐in Programs

Optimal Subsidy Schemes and Budget Allocations for Government‐Subsidized Trade‐in Programs

Upstream or Downstream: Who Should Provide Trade‐in Services in Dyadic Supply Chains?*

Analysis of Supply Chain under Different Subsidy Policies of the Government

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