Pricing behavior of monopoly market with the implementation of green technology decision under emission reduction subsidy policy

Abstract

Carbon emissions are one of the major constraints considered under a Cap-and-Trade (C-and-T) system, regarding the implementation of green technologies in the operations of emissions-generating companies. Green technology implementation, based on optimal pricing decisions, has become an inevitability due to rising carbon emissions. We studied the profit-maximizing behavior of a firm considering whether to implement of green technology due to subsidies offered on emission-reduction rates. In order to achieve the desired results, we used a simulation-based model and developed a conceptual model for the verification of functions. When the product price was high, the firm achieved a high profit, which was the main focus of the firm. The firm thus had sufficient resources to implement green technology. However, when the product price was low, the firm could achieve its goal of profit maximization, but did so without implementing green technology. To solve this problem, we studied government involvement in the market to incentivize emissions reduction and to benefit the firm. We decided to model emissions-reduction policy to encourage the implementation of green technology and support firm profits. We found that subsidies enabled a firm to maximize its profits while ensuring green technology implementation, while the firm would not have adopted green technology without subsidies or mandates. This study should help decision makers understand pricing strategies in the maximization of the profit. Additionally, this study helps demonstrate that the government plays an important role in monopolized markets by reducing negative externalities.