Abstract
This paper investigates green capacity strategies and production volume portfolio for two homogenous firms under emission constraint and demand uncertainty. Each firm utilizes either inflexible capacity or flexible capacity which can postpone production after demand is observed. Results indicate that as the green product becomes more advantaged, flexible capacity advantage weakens and firms prefer inflexible capacity. Firms choose different capacity types when capacity investment costs are close; otherwise, they adopt the cost-advantaged type. A prisoner’s dilemma arises when inflexible capacity is relatively cost-advantaged, which is mitigated by Nash negotiation.
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