Subsidizing Professional or Amateur Manufacturers? Government Subsidy Policies for Emergency Medical Production During COVID-19

Both professional and amateur manufacturers, subsidized by the governments, have joined the emergency production of personal protective equipment (PPE) to combat the COVID-19 pandemic. In this paper we examine the impacts of government financial subsidies on the pricing decisions of professional and amateur manufacturers and retailers concerning PPE supplies. Considering a two-supplier one-retailer supply chain, we build game-theoretic models and derive the players’ optimal pricing decisions. We explore the impacts of government subsidies under three different scenarios, namely subsidizing the manufacturers only, subsidizing the retailer only, and subsidizing both the manufacturers and retailer. Through sensitivity analyses of the key model parameters, we find that government subsidies can lower the retail price of PPE. We obtain the necessary conditions for when and how manufacturers and retailers should be subsidized to control the price of PPE. We also find that government subsidies can increase the consumers’ benefit by controlling their levels. Our study provides managerial insights on government subsidy policy design and the pricing decisions of substitute PPE supplies from different manufacturers during the pandemic.