Adoption of Electric Vehicles: Manufacturers' Incentive and Government Policy

In the literature, auto manufacturers' incentives for adopting electric vehicles and their interactions with government policies are understudied, especially through an analytical approach. We develop a game-theoretic model to investigate what vehicle types should be produced from both private firms' and social perspectives. We then propose an EV-subsidy/environmental-tax policy and derive the optimal policy parameters that maximise social welfare. The monopoly and duopoly markets are examined and compared, and it is shown that the government should charge a higher environmental tax, while offering a lower EV subsidy, in the duopoly market than in the monopoly market.