Price Decisions of New Product Based on Subsidy-pricedepending and Payment-sharing

In order to stimulate private spending and curb pollution, the Chinese government has decided to offer financial subsidy to carry out home-appliance replacement from June 1, 2009 to May 31, 2010. Because the financial subsidy can be offered until May 31, 2010, the manufacturer must face the problem: if the government stops to offer the financial subsidy, whether to continue the home-appliance replacement or not? If continue to carry out the homeappliance replacement, the manufacturer should give the payment to the replacement consumer. In this case, there is a potential risk for the manufacturer: the unit cost of the new product will increase. In this paper, we studied the price decisions for the manufacturer and the retailer under two cases: case I, the government offers the financial subsidy which is depended on the retail price; case II, the government stops to offer the financial subsidy, the manufacturer will share the payment with the retailer. At the same time, we analyze the impacts of the subsidizing rate and the sharing ratio on the optimal results by a numerical example.