Green innovation and product line decisions under environmental standard upgrading

Abstract

With the continuous improvement of product environmental standards, using or selling older generation products will increase additional environmental costs, resulting in a decrease in consumer preference for older generation products or products on hand. This paper investigates the impact of specific product environmental standards implementation on enterprise product line extension and pricing strategies. We find that if the production cost is low or the consumers’ green sensitivity is high enough, the manufacturer’s green production can be better than the designated standard. When the unit production cost of new products is within a certain range, the manufacturer’s profit will increase, otherwise it will decrease. In addition, we present the manufacturer’s product line update strategy in different market segments defined by different cost thresholds, which indicate the cases where the manufacturer will be forced to withdraw from the market. Moreover, we examine the correlation between consumer quality preference and market demand, and discover that an elevation in consumer preference for product functional quality does not necessarily result in a corresponding increase in product demand. Finally, we investigate the relationship between the manufacturer’s actual green product decision and the specified environmental standard, and give the decision areas where the manufacturer’s actual green decision is higher (or lower) than or equal to the specified green standard. The results suggest that blindly improving environmental standards by policymakers does not necessarily lead to an improvement in manufacturers’ green decisions.