Signaling green capability with wholesale price or certification

Abstract

With the rise of environmentally conscious consumers in the digital age, e-commerce platforms have a significant potential to promote green products through marketing. However, these platforms may face information asymmetry regarding the green production and operational capabilities of their manufacturing suppliers, which could hinder optimal marketing efforts. This study explores how manufacturers with high green capabilities can signal their private information to platforms to receive more green marketing support. We first analyze the traditional signaling mechanism using wholesale prices and then examine how the addition of green certification can facilitate the signaling process. We derive the supply chain equilibria under both signaling mechanisms. Our results show that a single wholesale price signal can substantially distort the manufacturer's wholesale price upward, leading to a significant deviation of the retail platform's pricing and marketing decisions from the optimal levels in a symmetric information scenario. However, adding green certification signals can mitigate this undesirable distortion and reduce the efficiency lost due to information asymmetry. Both signaling mechanisms can exacerbate the double marginalization effect, which can be mitigated to a smaller extent by adding green certification in the signaling contract. Our study highlights the signaling role of green certification in the supply chain and sheds light on the practical value of adopting green certifications.