Financing green technology development and role of digital platforms: Insourcing vs. outsourcing

Abstract

This paper investigates the green technology development (GTD) problem of a capital-constrained manufacturing entrepreneur who seeks financial support from external and internal multi-sided platforms (MSPs). Following the government's environmental policies, MSPs (i.e., outsourcing and insourcing alternatives) determine their strategies and offer platform-driven solutions to the manufacturing entrepreneur pursuing green innovation. Using benchmark models, we first analyze decisions made by the manufacturing entrepreneur and the MSP under the deregulated scenarios. We then develop a three-level game-theoretical model and sequentially characterize the decision-making behavior of players under three platform power structures. The model outcomes are compared by considering the government's policymaking approach and platforms' power structure. Results reveal that, when coupled with appropriately designed trade-credit and revenue-sharing mechanisms and the government's innovation-based social welfare approach, the internal MSP system always outperforms the external alternative. Our study demonstrates that a win-win agreement among GTD players can only be achieved if the MSPs take the balance of power and remain committed to empowering the initiated sustainable ecosystem. In power struggle scenarios, however, GTD players prioritize the internal MSP over the external MSP. To fulfill the GTD goals, players are encouraged to use their structural and legislative power and adjust their strategies, investment decisions, and power preferences accordingly.