Extending a Product Line With a Product Applying Green Technology

Abstract

Given the rise in consumers’ ecological awareness, many firms currently offering only nongreen products are extending their product lines with products applying green technology. We examine a monopolist's product line extension strategy and pricing strategy by explicitly considering the environment-related utility and spillover effects of a green product. The results show that a firm should introduce its green product when the spillover effects and the cost of the green product are small or the spillover effects are large enough. The firm should utilize a penetration pricing strategy for the functionally inferior green product when the environment-related utility is small or when the environment-related utility is moderate and the spillover effects are relatively small. Otherwise, the firm should adopt a skimming pricing strategy. However, the firm should adopt a penetration pricing strategy for the functionally superior green product when the spillover effects are relatively large and a skimming pricing strategy otherwise. Interestingly, the firm's total profit may decrease with the spillover effects when the spillover effects are small.