Document Type

Journal article

Source Publication

European Journal of Operational Research

Publication Date

12-1-2014

Volume

239

Issue

2

First Page

363

Last Page

376

Keywords

Supply chain management; Government scrappage program; Manufacturer; Retailer; Single period

Abstract

We investigate an automobile supply chain where a manufacturer and a retailer serve a market with a fuel-efficient automobile under a scrappage program by the government. The program awards a subsidy to each consumer who trades in his or her used automobile with a new fuel-efficient automobile, if the manufacturer’s suggested retail price (MSRP) for the new one does not exceed a cutoff level. We derive the conditions assuring that the manufacturer has an incentive to qualify for the program, and find that when the cutoff level is low, the manufacturer may be unwilling to qualify for the program even if the subsidy is high. We also show that when the manufacturer qualifies for the program, increasing the MSRP cutoff level would raise the manufacturer’s expected profit but may decrease the expected sales. A moderate cutoff level can maximize the effectiveness of the program in stimulating the sales of fuel-efficient automobiles, whereas a sufficiently high cutoff level can result in the largest profit for the manufacturer. The retailer’s profit always increases when the manufacturer chooses to qualify for the program. Furthermore, we compute the government’s optimal MSRP cutoff level and subsidy for a given sales target, and find that as the program budget increases, the government should raise the subsidy but reduce the MSRP cutoff level to maximize sales.

DOI

10.1016/j.ejor.2014.05.012

Print ISSN

03772217

E-ISSN

18726860

Publisher Statement

Copyright © 2014 Elsevier B.V. All rights reserved. Access to external full text or publisher's version may require subscription.

Full-text Version

Accepted Author Manuscript

Recommended Citation

Huang, J., Leng, M., Liang, L., & Luo, C. (2014). Qualifying for a government’s scrappage program to stimulate consumers’ trade-in transactions? Analysis of an automobile supply chain involving a manufacturer and a retailer. European Journal of Operational Research, 239(2), 363-376. doi: 10.1016/j.ejor.2014.05.012