Cooperation with competitor or not? The strategic choice of a focal firm’s green innovation strategy

Abstract

In this paper, we investigate whether and when a focal firm, with either an inferior or a superior brand to its competitor, should cooperate with that competitor to conduct green innovation when facing consumers with green preferences. We incorporate both the principal positive effect on the focal firm (a reduction in R&D costs) and the principal negative effect (more intense competition due to the reduction in product differentiation) of the “co-opetition” relationship. We find that for a focal firm with either an inferior or a superior brand, cooperation with the competitor does not always lead it to produce a greener product. Cooperation with the competitor on green innovation dominates only when: the green innovation cost-effectiveness (which is simultaneously impacted by the consumers’ green preference, the R&D cost, and the variable cost of each degree of enhanced greenness of the product) is not too large; the brand differentiation gap between the two firms is large, or a large proportion of the R&D cost is borne by the competitor. Otherwise, conducting green innovation alone always dominates. What is more, we find the impact of different brand positioning cannot be ignored when choosing the co-opetition relationship. The findings provide guidance for managers when deciding whether or not to cooperate with competitors on green innovation projects.