Enhancing new product diffusion: when government subsidy meets technology sharing

This study investigates how government subsidies influence an incumbent's incentive to share its technology with a potential entrant to enhance new product diffusion under low‐acceptance risk. We demonstrate the relative effectiveness of higher over lower subsidies in promoting technology sharing, if the entry significantly raises consumers’ lowest willingness to pay (LWTP), the incumbent (the entrant) is less (more) risk‐averse, and their production costs are comparable. In such cases, consumer subsidy is also more advantageous than manufacturer subsidy in promoting technology sharing. Otherwise, the reverse holds true. Moreover, while increased LWTP consistently reinforces the advantage of consumer subsidy, increase in the upper bound of willingness to pay makes manufacturer subsidy more effective instead when the incumbent is significantly more risk‐averse. Finally, consumer subsidy outperforms manufacturer subsidy in consumer surplus, and it generates higher (or lower) social welfare than the latter when the manufacturers are with high (or low) risk aversion.