Manufacturers' product-line strategies under various government regulations

Abstract

Severe environmental pollution and shortage of resources have led the government to issue strict regulatory policies, such as cap-and-trade, strict carbon cap, and carbon tax. Moreover, the manufacturer can design two kinds of product lines to respond to government regulations. Specifically, the manufacturer can produce normal products (NPs) with higher prices and emissions, and low-carbon remanufactured products (LCRPs) with lower prices and emissions. This paper studies how the manufacturer designs the product line under different regulatory policies. The results show that, under cap-and-trade, when carbon quotas are fewer (relatively higher), the manufacturer would produce NPs and LCRPs (only LCRPs); when carbon quotas are very large, the manufacturer's production would grind to a halt. Moreover, under the strict carbon cap, the manufacturer would produce only LCRPs in the lower carbon cap and produce both NPs and LCRPS in the relatively higher cap. Besides, under the carbon tax, the manufacturer would produce NPs and LCRPs at a lower tax rate, produce only LCRPs at a relatively high tax rate, and stagnate production at a very large tax rate. Furthermore, we analyze consumer surplus and social welfare under different government regulations.