Sell to whom? Firm’s green production in competition facing market segmentation

Abstract

When substantial numbers of consumers claim to be “green”, firms face the choice of whether to develop green products which are more environmental than their traditional counterparts. In many cases, consumers may differ in their willingness-to-pay for the green products that firms should determine which segment to sell the green products to. This paper examines the role of costs, consumer’s green segmentation, and competition in firm’s green production decisions. We find that the cost conditions for green production is relaxed in competition cases compared with the monopolist case. Under competition, the traditional firm would possibly to defend his market share via decreasing the traditional product’s price, which leading to an equilibrium that green products are sold to green segment solely. And we show that in some cases, both traditional and green firms can benefit from a large green segment ratio and consumer’s premium differentiation.Big data contains huge value through which we can better understand consumers. Based on big data technologies development, consumers can be accurate segmented with improved indexes of green premium and segment ratio, thus these conclusions can provide guidance to green production in practice.