Maxime Cohen

 

We study the impact of government subsidies for green technology adoption while considering the manufacturing industry's response. More specifically, the manufacturer adjusts its production quantity and price depending on the level of consumer subsidies offered by the government. With this motivation, we expand the current understanding of the price-setting newsvendor model, while now incorporating the consumer subsidies and the government as an additional player. We develop analytical results for the single period problem and consider both deterministic and stochastic demands. We introduce and analyze a model where the government sets subsidies to achieve an adoption target level while minimizing its cost, whereas industry decides production and pricing to optimize its profit. We compare the results for different market dynamics and draw some insights on the optimal strategies for both the government and the supplier. In particular, we demonstrate that when the demand is uncertain quantities produced are higher whereas prices and supplier's profit are lower. Both additive and multiplicative demand models are considered and several closed form analytical expressions are obtained for simplified special cases. Finally, a case study of the German solar industry is presented to provide some insights about current policies.

This is joint work with Georgia Perakis and Ruben Lobel.