Government Subsidies for Sustainable Vehicle Replacement: Who Moves First in NEV–GV Manufacturers’ Pricing and Trade-In Strategies?

Vehicle replacement programs have become an important policy instrument for promoting sustainable mobility and accelerating the transition from gasoline vehicles (GVs) to new-energy vehicles (NEVs). In such markets, government subsidies, manufacturer competition, and trade-in strategies jointly shape not only manufacturers’ decisions but also environmental and social outcomes. Motivated by this issue, this study develops a game-theoretic model to examine competitive manufacturers’ optimal pricing and trade-in strategies as well as the government’s socially optimal subsidy level. Furthermore, using numerical examples, we reveal the effect of the action sequences of NEV and GV manufacturers on manufacturers’ pricing and trade-in decisions as well as the government’s socially optimal strategy. The results indicate that (1) manufacturers’ pricing and trade-in strategies are not only affected by government subsidies but also closely related to the gap between consumers’ mileage anxiety and degree of alternative preference. (2) The environmental benefits of recycling old products affect government subsidies on the consumption and production side at different levels. (3) NEV and GV manufacturers diverge in terms of how they respond to the sequence of their business strategies. This study contributes to the sustainability literature by showing how subsidy design and manufacturers’ decision sequence jointly affect sustainable consumption, recycling-related environmental benefits, and the transition toward cleaner mobility. The findings provide implications for sustainable vehicle replacement and support Sustainable Development Goal (SDG) 11, SDG 12, and SDG 13 by promoting cleaner mobility, responsible consumption, and climate action.