Competition vs. Cooperation: Do Subsidies with Government-Set Eligibility Threshold Values Produce Lower Battery Electric Vehicle Prices?

Abstract

The present work is related to a subsidy program, with government-set eligibility threshold values, for Battery Electric Vehicles (BEVs), based on the tender of the Hungarian Ministry of Economics and Technology related to the Climate Action plan. After describing the program, the Hungarian BEV market in this period is presented using aggregate registration data available from 2016 to 2021. The paper has a methodological contribution by showing the relevant breakpoints of illustrated profit functions with imposed threshold values for subsidy eligibility in a monopolistic frame. On this basis, the program’s effects on the prices’ behavior for three selected BEV models is analyzed and the extent to which the threshold values impact the firms’ cooperation in an oligopoly market is evaluated. Results show that the program was inefficient upon its launching since the threshold value was too high, and thus firms could partially capture benefits of the subsidy. On the other hand, it is shown in the third cycle of the program that a threshold value chosen from the optimal price interval gathers prices higher than the threshold to the focal point given by the threshold, and thus it has a price-decreasing effect. In the last cycle of the program, a lower threshold value could have been more effective; however, data on these models show that non-optimum thresholds create competition, and thus prices decrease until a certain level regardless.