The introduction and market expansion effects of green products considering network externalities

Abstract

The growing global awareness regarding environmental concerns has prompted various industries to develop and launch green products. As a result of this, the strategic approach to introducing green products has emerged as a pivotal topic. This study explores the introduction strategy employed by a monopolist seeking to launch a green product. The green product not only matches the practical quality of the regular product but also integrates additional environmentally friendly attributes. Utilizing a two-period analytical model, we examine the introduction strategy of green products, considering factors such as practical quality, marginal cost, greenness value, and network externalities. Our work yields optimal pricing for both regular and green products and outlines the introduction strategy for green products in scenarios characterized by low and high marginal costs, respectively. Additionally, the extension section explores the role of consumer education on environmental awareness in market expansion effects and proposes the optimal level of consumer education effort. Our findings demonstrate that a firm's introduction strategy for green products depends on the magnitude of network externalities and the value associated with the environmental attributes of green products. Moreover, we find that in most cases, before the formation of network externalities, a stronger attribute of network externalities leads to lower prices for green products, while after the formation, it results in higher prices.