Manufacture's Production and Pricing Strategies With Carbon Tax Policy and Strategic Customer Behavior

Abstract

This paper investigates the manufacture’s production and pricing strategies with carbon tax policy and strategic customer behavior, and analyze the impact of carbon tax policy and its parameter on the manufacturer’s optimal strategies and maximum expected profit. We derive the optimal production, pricing strategies and maximum expected profit under the rational expectations equilibrium. The results show that the manufacturer’s optimal production quantity and maximum expected profit are decreasing in carbon tax rate, and the manufacturer’s optimal price is increasing in the carbon tax rate. Compared with the no carbon emission policy scenario, we prove that the manufacturer’s optimal production quantity decreases, the manufacturer’s optimal price increases, the manufacturer’s maximum expected profit decreases, and the carbon tax policy effectively reduces the manufacturer’s carbon emissions.