Impact of product subsidies on R&D investment for new energy vehicle firms: Considering quality preference of the early adopter group

Weidong Meng, Ye Wang, Yuyu Li and Bo Huang

PLOS ONE, 2020, vol. 15, issue 7, 1-14

Abstract: Different consumer groups accept new energy vehicles sequentially from the perspective of innovation diffusion theory, and the early adopter group has recently been identified. By assuming that the density of early adopters is increasing at minimum acceptable quality thresholds, this paper proposes a vertical quality differentiation model of product R&D with product subsidies. The impact of product subsidies on the R&D investment of new energy vehicle firms is discussed. We show that the early adopters’ characteristics may affect the stagnant marginal R&D investment of new energy vehicle firms by increasing sales, which determines the impact mechanism of product subsidies. For firms with decreasing marginal R&D investments, insufficient R&D investments result from financial constraints. If insufficient R&D resources deter firms from conducting R&D, substantial unit subsidies invariably incentivize firms to spend their entire R&D budget. Firms with increasing marginal R&D investments, insufficient R&D profits, or financial constraints are prevented from increasing R&D investment. Product subsidies generally have a crowding-in effect on firms not subject to financial constraints, and this effect increases with the unit subsidy. However, the existence of a crowding-in effect may require sufficiently large unit subsidies. In both situations, product subsidies cannot modulate financial constraints if the firm has spent its entire R&D budget. In the first situation, we also show that product subsidies should be replaced by a funding support policy. In contrast, the second situation shows that a funding support policy should be coordinated with product subsidies.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0236626 (text/html)
https://journals.plos.org/plosone/article/file?id= ... 36626&type=printable (application/pdf)

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:plo:pone00:0236626

DOI: 10.1371/journal.pone.0236626

Access Statistics for this article

More articles in PLOS ONE from Public Library of Science
Bibliographic data for series maintained by plosone ().