Impacts of government subsidies for environmental-friendly products in a dual-channel supply chain

This paper studies the impacts of government's consumption subsidy and replacement subsidy towards environmental-friendly products in a dual-channel supply chain. Considering the utilities of the different consumers, we introduce the replacement consumers' valuation of obsolete products and differentiate the replacement subsidy into two cases: low and high, and then the game models are established among a manufacturer and two retailers (a traditional retailer and an e-tailer). The results indicate that the consumption subsidy benefits both kinds of consumers, while the replacement subsidy benefits the replacement consumers but hurts the primary consumers. Both subsidies benefit the enterprises but intensify the channel competition. Which subsidy is better for the enterprises depends on the subsidy amount and three key factors related to the recovery market. Subsidy policies are more beneficial to the firm in the e-channel than that in the retail channel. However, our numerical study suggests that as the subsidy increases, the marginal diminishing effect of the social welfare is also more significant in the e-channel than the retail channel. The replacement subsidy is more efficient to protect the environment, but the consumption subsidy is more efficient to improve the social welfare. Besides, the social welfare under the high replacement subsidy is not always higher than that under the low subsidy. (C) 2017 Elsevier Ltd. All rights reserved.