Online channel structures for green products with reference greenness effect and consumer environmental awareness (CEA)

Abstract

By formulating a stylized model in an e-commerce supply chain comprising of one green manufacturer and one e-tailer, this paper investigates the choice of selling formats (reselling or agency selling) with consumer reference greenness effect and environmental awareness. The results indicate that online channel structures depend on the cost efficiency of greenness improvement. Specifically, when the cost efficiency is lower or higher, both parties in the supply chain prefer reselling; in contradistinction, when the cost efficiency is medium, agency selling is preferable. We find that, as reference greenness effect and consumers environmental awareness (CEA) increase, firms will have a greater preference for agency selling for which greenness improvement and supply chain performances are better, compared to reselling. Differing from the common belief that the manufacturer will produce products with higher greenness under the reference greenness effect, we show that the manufacturer may instead opt to produce low greenness products. Specifically, when the reference greenness is low, the manufacturer tends to produce products with higher greenness; while when the reference greenness is high, they tend to produce low greenness products. This is because the negative effect of high costs will dominate the positive effect of the reference greenness effect, firms benefit less and slow the rate of greenness improvement. We show that the main conclusions still hold and provide some new insights when considering manufacturers competition, different types of green products, and reference price effect further.