The choice of cooperative technology innovation strategies in a supply chain under governmental subsidy

Abstract

Governments all over the world usually establish the policy of subsidies to stimulate firms’ technology innovation behaviors. The participating firms may share the high risk of expense through cooperative technology innovation. Different forms of governmental subsidies may have a significant impact on the choice of firms’ cooperative innovation strategies. This paper investigates the effect of government subsidies on firms’ technology innovation strategies. We consider two modes of cooperative technology innovation (technology transfer or joint innovation) in a two-level supply chain including an upstream manufacturer (UM) and a downstream manufacturer (DM) in the presence of two forms of governmental subsidies (a per-unit production subsidy or an innovation subsidy). We find that in the presence of either form of governmental subsidy, technology transfer mode is better off for the UM than joint innovation mode when the UM’s distribution power is greater than a threshold, otherwise joint innovation mode is better off. In the presence of a given form of governmental subsidy, the DM’s response strategy is influenced by the interaction of different values of the proportion of revenue and the fraction of innovation cost. In the presence of a per-unit production subsidy, the social welfare is always more under technology transfer mode than under joint innovation mode, while in the presence of an innovation subsidy, the opposite is true. We also show that under a given cooperative innovation mode, both the UM and DM expect a per-unit production subsidy if the per-unit tax credit is high, and they expect an innovation subsidy if the proportion of governmental subsidy is high. Finally, we discuss the robustness of the theoretical results.