Abstract: Government subsidies for green products adoption while considering the supplier's response are studied in this paper. Government subsidies offered directly to consumers impact the supplier's production and pricing decisions. Considering the effects of uncertain demand, two different subsidy schemes are compared:a subsidy scheme and a price discount scheme. A frameworkfor policy makers to find optimal subsidies or optimal price discount rates is proposed. The results show that given the specific form of demand function, the optimal subsidy or price discount provided by governments, the optimal output of enterprises and the total expenditure of the government increase with the increase of thetarget adoption leveldesired by the government. From the perspective of minimizing government expected expenditure, the subsidy scheme is the best choice for governments. Given the government expenditure, from the perspective of maximizing the output of enterprises, a price discount scheme is the best choice for the government.The price discount scheme will reduce the consumers' expenditure and increase the welfare surplus of consumers, which is favorable to consumers. Our analysis expands the current understanding of the price-setting newsvendor model, and sheds some light on how demand uncertainty affects consumer subsidy policies, as well as price and production quantity decisions from manufacturers of green products.

Key words: green technology innovation, government subsidies, demand uncertainty, newsvendor model