The Effect of Green Technology Adoption Strategy on Duopoly Competition

Chenglin Shen,Xinxin Zhang

doi:10.21078/jssi-2021-498-21

Abstract

Abstract Given consumers’ trade-offs between conventional economic and environmental attributes of products, we provide a game-theoretic model to explore the role of GTA strategy in duopoly competition by incorporating two salient features: Two product types — The green product produced by a firm with GTA strategy and the ordinary product produced by a firm without GTA strategy, and two consumer segments, i.e., the green consumers who are willing to pay for green products and the ordinary consumers who are willing to pay for ordinary products. Our analysis shows that GTA strategy may either increase or decrease the green firm’s quality provision. The subtle relationship between the green firm’s quality strategy and GTA strategy not only affects its own equilibrium performances but its rival’s. We also find that two consumer segments may be better off in the presence of a lower GTA intensity. Additionally, although the GTA strategy benefits the environment, the GTA investment is not the more the better. Finally, we find that GTA strategy would lead to higher social welfare only when the GTA efficiency is high enough. Our work not only provides an alternative economic explanation why some firms choose to implement GTA strategy and some do not in reality, but gives managerial insights for firms with different GTA strategies as well as policy insights for the social planner.

Highlights

Increasing social concerns over environmental deterioration and consequences push manufacturers to reconsider their current production practice and look for ways to mitigate environmental damages
We find that the green technology adoption (GTA) strategy may either enhance or hurt the profit of the firm with GTA strategy, which depends on its GTA efficiency and the degree of horizontal differentiation between the firm and its rival
We find that compared with the case of no green production, the GTA strategy implemented by one firm would lead to a higher social welfare only when the GTA efficiency is high enough (i.e., η < η)

Summary

Introduction

Increasing social concerns over environmental deterioration and consequences push manufacturers to reconsider their current production practice and look for ways to mitigate environmental damages. GTA strategy is empirically proved to have a positive effect on firms’ economic and environmental performance[5,6,7], quite a few of manufacturers do not implement green production option in reality. A firm’s GTA choice is usually intertwined with its quality provision which in turn influences pricing decisions, demands and profits of both the manufacturer itself and its rival as well as consumer surplus and social welfare. To better understand how firms with different GTA strategies should choose their product quality and price levels and how the GTA strategy influences firms’ profits, consumer surplus as well as social welfare, we design a competition model between firms with different GTA strategies to investigate firms’ pricing and quality decisions.

Literature Review

Model Descriptions and Notations

Equilibrium Analysis

Welfare Analysis

Findings

Conclusions