The Impact of Fiscal Subsidies on Market Structure: A Case Study of Oligopoly

Journal: Modern Economics & Management Forum DOI: 10.32629/memf.v6i6.4651

Shiyun Shen

High School Affiliated to Shanghai Jiao Tong University, Shanghai 200439, China

Abstract

Governments often use fiscal subsidies to promote industrial development, but whether these subsidies truly enhance market competitiveness remains controversial. This study takes China’s new energy vehicle (NEV) industry as an example, using panel data from 2021 to 2024 and multiple regression methods to investigate the impact of fiscal subsidies on market structure. The results show that fiscal subsidies are significantly positively correlated with market concentration (measured by CR4 and HHI), especially in years when subsidies are more concentrated or industry revenue is higher, with leading firms further expanding their market shares. This suggests that fiscal subsidies may unintentionally reinforce oligopolistic structures and suppress the growth potential of small and medium-sized enterprises. From the perspective of price mechanism theory, fiscal subsidies are, to some extent, equivalent to price floors, distorting the normal market adjustment process. This paper recommends that policymakers fully consider the long-term effects of support policies on market structure and the competitive environment to avoid weakening market vitality due to resource misallocation.

Keywords

fiscal subsidies, market structure, oligopoly, firm concentration, panel data, competition

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