Domestic substitution and supply chain performance: The impact of technology and price subsidies

Jian Wang, Xiaofeng Shao, Guanmei Liu and Zhili Yuan

Transportation Research Part E: Logistics and Transportation Review, 2025, vol. 201, issue C

Abstract: In the current volatile global market, domestic substitution is increasingly crucial to mitigate reliance on foreign suppliers. However, the quality of domestic components is unstable, and the R&D costs are substantial. Recognizing this quandary, the government has intervened through technology subsidies(TS) or price subsidies(PS) to promote domestic supply chain performance. We formulate the interactions among the domestic supplier’s R&D and pricing strategies, the manufacturer’s domestic substitution, and the government subsidies, analyzing the effects of TS and PS. Our findings reveal that TS exerts dual effects: price increment through quality improvement and decrement owing to subsidy provision. Interestingly, the price increase is more significant for the manufacturer’s product than for the supplier’s component, indicating that upstream R&D endeavors yield greater benefits. Three types of PS – subsidy to the supplier, the manufacturers, and consumers – are identical except for the direct recipients, suggesting that, for the government, it is equivalent to provide PS to any supply chain member. In addition, the feasibility of TS for the government concurrently guarantees that the domestic suppliers will engage in R&D. Regarding subsidy choice, the manufacturer consistently prefers TS, while the choice of the supplier and the government hinges on R&D costs. Numerical experiments indicate that, from the perspective of the government, scenarios favoring PS are significantly limited when TS is feasible, regardless of the budget constraint. For promoting domestic substitution, TS invariably outperforms PS, despite imposing a greater financial burden.

Keywords: Domestic substitution; Supply chain welfare; Technology subsidy; Price subsidy; Game theory (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1366554525002595
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:transe:v:201:y:2025:i:c:s1366554525002595

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/bibliographic
http://www.elsevier. ... 600244/bibliographic

DOI: 10.1016/j.tre.2025.104218

Access Statistics for this article

Transportation Research Part E: Logistics and Transportation Review is currently edited by W. Talley

More articles in Transportation Research Part E: Logistics and Transportation Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().