The impacts of government green innovation subsidies in a complementary supply chain

The government provides green innovation subsidies to firms to stimulate their innovation ability and products’ green innovation levels. We consider a complementary supply chain composed of one supplier and one manufacturer. The supplier and the manufacturer produce components separately, and then the manufacturer combines those two components into one product and sells them to consumers. The government adopts three strategies to maximize social welfare: subsidizing the supplier, manufacturer, or both. Through comparative analysis, we find that when the government subsidizes the manufacturer, the product green innovation level and social welfare are the highest. However, subsidizing the supplier strategy is the worst. Social welfare and product innovation quality are more sensitive to consumers’ green product innovation coefficient than improving cost parameters. Surprisingly, the consumer demand is the same under those three strategies.