Abstract:
- Improving Consumer Welfare and Manufacturer Profit via Government Subsidy Programs: Subsidizing Consumers or Manufacturers?
Most consumers in rural areas of many developing countries cannot afford to purchase certain livelihood improvement products such as home appliances. To improve consumer welfare and manufacturer profit, many governments launch different types of subsidy programs that offer subsidies to consumers, manufacturers, or both. Motivated by a subsidy program developed by the Chinese government in 2007, we present a parsimonious model to determine the optimal subsidy program in different settings so as to gain a better understanding about the conditions under which it is optimal for the government to subsidize consumers only, manufacturers only, or both. Our analysis reveals that the structure of the optimal subsidy program depends on (a) whether there is a well- established market selling price for the products; and (b) the relative emphasis that the government places on consumer welfare versus manufacturer profit. Also, we find that governments can improve consumer welfare by developing subsidy programs that involve competing manufacturers with different market sizes and adequate capacities. Our findings provide insights for developing effective government subsidy programs.
2. A Balancing Act of Regulating On-demand Ride Services
Regulating on-demand ride-hailing services (e.g., Uber and DiDi) requires a balance of multiple competing objectives: encouraging innovative business models (e.g., DiDi), sustaining traditional industries (e.g., taxi), creating new jobs, and reducing traffic congestion. This study is motivated by a regulatory policy implemented by the Chinese government in 2017 and a similar policy approved by the New York City Council in 2018 that regulate the “maximum” number of registered Uber/DiDi drivers. We examine the impact of these policies on the welfare of different stakeholders (i.e., consumers, taxi drivers, on-demand ride service company, and independent drivers). By analyzing a two-period dynamic game that involves these stakeholders, we find that without government intervention, the on-demand ride service platform can drive the traditional taxi industry out of the market under certain conditions. Relative to no regulations and a complete ban policy, a carefully designed regulatory policy can strike a better balance of multiple competing objectives. Finally, if a government can reform the taxi industry by adjusting the taxi fare, then lowering the taxi fare instead of imposing a strict policy toward on-demand ride services can improve the total social welfare.
Bio:
Dr. Jiayi Joey Yu is now a postdoctoral researcher at Department of IEOR, University of California, Berkeley. Her research interests have been focusing on practical problems arising from public policy issues, socially responsible operations and innovative business models. Dr. Yu received both Ph.D. and Bachelor degree from Department of Industrial Engineering, Tsinghua University and was a visiting Ph.D. student of UCLA Anderson School of Management. So far, she has published papers in journals like Management Science, Manufacturing & Service Operations Management, Decision Sciences, etc.