Platform subsidy policy design for green product diffusion

Abstract

With the advent of information technology, online platforms have become an vital intermediary for acquiring green information and purchasing green products. This study uses two-sided market theory to estimate the size of the green market for green subsidies under various targets. First, we compare the differences in the equilibrium market size and platform profits for three scenarios (no subsidy, maximum platform profits, and maximum social welfare). In addition, we measure the basic conditions for start-up subsidy schemes. Finally, we employ numerical analysis to explore how other critical factors, including cross-network externalities, product pricing, and research and development (R&D) costs, impact the market size in three scenarios. The result demonstrates how online platforms use cross-side network externalities to design asymmetric pricing strategies or subsidy policies to develop the market for green products. It has managerial implications for online platform owners or politicians in subsidizing the expansion of green products.