Government subsidy strategies for cross-border pharmaceutical supply chains under competitive environment

Purpose Government subsidies can, to a certain extent, incentivize pharmaceutical companies to engage in research and development (R&D), thereby enhancing the efficacy of pharmaceutical products. Therefore, this paper aims to study the impact of different government subsidies on the international pharmaceutical market in order to help governments design a reasonable government subsidy strategy. Design/methodology/approach This paper constructs a cross-border pharmaceutical supply chain game model to assess the impact of various government subsidy strategies on competition between pharmaceutical manufacturers in two countries. It analyzes and compares the effects of a no government subsidy (NGS) scenario with three subsidy strategies: R&D investment subsidy (RDS), pharmaceutical product innovation level subsidy (ILS) and pharmaceutical product transaction volume subsidy (TVS), on equilibrium price and system performance. Findings This paper finds that three subsidy strategies have positive incentives for the development of innovation in the domestic pharmaceutical market. The RDS is the optimal subsidy strategy, which has the most significant effect on the incentive effect of the domestic pharmaceutical market and the inhibiting effect on the invasion of imported pharmaceutical products. Government subsidies facilitate the innovation capacity of pharmaceutical companies. It also finds that when subsidies increase in the TVS scenario, the wholesale and retail prices of domestic pharmaceutical products decrease instead. Originality/value First, this work extends the traditional supply chain to a cross-border supply chain by adding the impact of tariffs on domestic and foreign pharmaceutical manufacturers. Second, in studying government subsidy strategies, we distinguish ourselves from previous studies by extending the subsidy strategies to three. Finally, we analyze the impact of tariffs and government subsidy strategies on pharmaceutical manufacturers in different countries in our analysis.