Quantifying the effects of carbon tax policy on servitization

Abstract

Servitization is an innovative business model in which the use of a product is sold instead of the product itself. Although effect of a carbon tax policy on a traditional selling business model is comprehensively addressed in the existing literature, to the best of our knowledge, there is no study proposing models for servitization with and without carbon tax to quantify the effects of carbon tax policy on servitization business model. Motivated by this fact, this study investigates and quantifies the economic, environmental and social effects of carbon tax policy on servitization business model. To this end, we consider a supply chain in which the manufacturer manufactures and servitizes a durable product to customers, and we focus on two cases as (i) the manufacturer works in an environmentally unregulated area, and (ii) the manufacturer works under a carbon tax policy. We propose Stackelberg Game models for these cases and analytically compare the equilibrium decisions. Our results reveal that although a carbon tax policy may be beneficial in terms of decreasing the environmental impact, it may also deteriorate the manufacturer’s profit and social welfare. Moreover, we observe that low customer segment is affected more from a carbon tax policy than the high customer segment. Finally, our analysis regarding the parameters reveals that increasing the maximum usage amount of a product may be beneficial to all actors such as the manufacturer, the customers, the government and the environment.