The optimal subsidy scheme and technology innovation strategy considering consumers' green premium

Abstract

Purpose This paper investigates how a regulator pursuing social welfare maximization designs an optimal subsidy scheme to stimulate technology innovation in the presence of a consumer green premium. Specifically, the authors solve the following questions: (1) Does the consumers' green premium affect the design of the subsidy scheme? (2) How should the firm choose a green technology innovation strategy under the optimal subsidy scheme? (3) Does technology innovation bring higher social welfare and lower environmental impact? Design/methodology/approach The authors first develop a game model to explore the impact of subsidy schemes on social welfare without considering technology innovation. Then the authors investigate two innovation strategies, in-house innovation and external introduction, under the optimal subsidy scheme. Finally, they illustrate the optimal choices of innovation strategy for the firm, consumers and regulators. Findings The results reveal that the subsidy scheme will not always increase social welfare, which depends on the environmental improvement coefficient of the unit green level. The optimal subsidy level increases with the green premium, but it is not related to the size of the consumer green segment. Moreover, the success rate of in-house innovation will raise the optimal green level, but the company benefits from an increased success rate of in-house innovation only when the green segment is large enough. The green segment size and external green level jointly determine the choice of technology innovation strategy. Originality/value This research is the first to analyze this problem while considering the green demand and subsidy scheme simultaneously as drivers of a firm's technology innovation, thereby providing new managerial implications for decisions by the regulator and firms.

Warranty or education?: An analysis of marketing strategy choices for remanufactured products

“…Li et al (2019) evaluated green suppliers through multiple consecutive evaluation cycles that will aid a company in effectively managing its key suppliers. Wang et al (2021) investigated the optimal subsidy scheme and technology innovation strategy considering consumers' green premium. Dong et al (2016) further explored the sustainability investment of RPs.…”

Information infrastructure and corporate green innovation quality incentive

“…Enterprises can reduce emissions and produce more green-differentiated products [ 37 ], thus gaining new market share and improving green competitive advantage [ 38 ]. Consumer’ acceptance of green products with green innovation continues to rise, and they can tolerate the product premium brought about by green products to a certain extent [ 39 ], further expanding the profit space brought about by green innovation. In the face of green-conscious consumers, downstream enterprises producing environmental-friendly products, and upstream enterprises using green technology, the pressure of green market demand forces enterprises to produce green innovation demand [ 40 ].…”

Battery R&D decision of electric vehicle manufacturer considering government subsidy

“…Some literature considered R&D at the product level (Hong and Guo, 2019; Agi and Yan, 2020; Wang et al. , 2021).…”

“…Nie et al (2022) found technology spillover reduces the price of innovative products, benefits competitors and damages high-tech companies. Wang et al (2021) considered consumer segments and compared risky internal innovation and risk-free external introduction.…”

“…Tookanlou and Wong (2021) considered both horizontal and vertical differentiation and found market characteristics and channel structure have a significant impact on product design. Some literature considered R&D at the product level (Hong and Guo, 2019;Agi and Yan, 2020;Wang et al, 2021). Some others considered component R&D, but assumed that the manufacturers cooperate in R&D (Kim et al, 2013;Xu and Zhou, 2021).…”