The role of green customers under competition: A mixed blessing?

Abstract

We develop a game theoretical model to examine the role of green consumerism under competition by incorporating two salient features; these features are two product types, i.e., the brown product produced by a brown manufacturer and the green product produced by a green manufacturer, and two customer groups, i.e., a group of green customers who are willing to pay a price premium for the green product and a group of brown customer who are not. The brown manufacturer is assumed to be a powerful incumbent and move first to price the brown product in the competitive market. Our analysis shows that the existence of green customers is beneficial to the green manufacturer and two groups of customers, though it could be detrimental to the environment under certain conditions. Furthermore, we demonstrate that from two manufacturers' perspectives, an enlarging size of the green customer group may result in a loss-loss situation, while an increasing premium for the green product may lead to a win-win situation; these results are reversed from two groups of customers' perspectives. Our work highlights the different roles of the size of the green customer group and the premium for the green product, and generates managerial insights for different stakeholders.