Electric vehicle manufacturers’ decisions on investing in carbon-reduction technology under government subsidy: a Cournot game model

Abstract To reduce carbon emissions in the electric vehicle (EV) market, the Chinese government has issued a subsidy scheme involving a subsidy threshold that is quite different from the fixed subsidy. This study aims to investigate competing EV manufacturers’ decisions on carbon-reduction (CR) technology investment under the subsidy threshold. We construct a Cournot game model involving two competitive EV manufacturers. The results show that decisions of the two EV manufacturers on investing in CR technology vary under different subsidy thresholds. Particularly, they would make the same investment decisions when the subsidy threshold is low or large, but achieve the opposite investment decisions when the subsidy threshold is intermediate. In the benchmark model where there is only one EV manufacturer, an EV manufacturer could always increase its profit from investing in CR technology when the subsidy threshold is low. In the Cournot model where there are two competing manufacturers, however, they may get involved in the Prisoner’s Dilemma and both manufacturers could suffer economic losses from CR technology investment.