Product Differentiation and Consumer's Purchase Decision-making under Carbon Footprint Scheme

Abstract

This study investigated the effects of carbon footprint (CFP) labels on consumer purchase decision-making. CFP labels generally provide information related to the amount of CO2 emissions during production, use, and final disposal of a product. For this study, human participant experiments were conducted using the experimental economics method. The experiment particularly examines whether CFP labels are attached to products or not, additionally considering the information disclosure of the relation between CO2 emissions and environmental damage and other consumers’ purchasing behavior. Results show the following: 1) when the information is open, it is better to attach CFP labels to both the environmentally friendly product and the less-friendly product; 2) when the information is closed, it is better to attach CFP labels only to the environmentally friendly product; 3) when CFP labels are attached to both products, it is better to give open the information. These results suggest that if CFP labels cover all products in the near future, they should provide information related to environmental damage as well as CO2 emissions, which can be expected to motivate consumers to purchase environmentally friendly products.