Firm's Green Production Considering Consumers Premium Differentiation And Competition

Environmental problems such as global warming have caused a series of ecological and economy problems.The environmental problems get worldwide attention,man-made carbon dioxide emissions at present is considered to be the main cause of global warming.In order to limit and reduce carbon dioxide emissions,many countries and regions are formulating corresponding policies against carbon emissions.One of the most typical two emission reduction policies are carbon cap-and-trade and carbon tax.China and the European Union adopt carbon cap-and-trade policy.Carbon cap-and-trade policy provide the policy basis for enterprises to reduce emissions.At the same time,consumers demand more environmental products in the market.More and more consumers have environmental consciousness,the market shows growing demand of environmental friendly product.Environmental friendly demands in the market promotion enterprises to provide low-carbon products and other environmental products.This paper using mathematic models to solve the firms' environmental production decision-making mainly considering the three aspects:carbon cap-and-trade,consumer demands and competition.1.Firm's low carbon decisions in cap-and-tradeTo enterprise low carbon production decisions in a large number of studies,usually pay attention to the reduction in the process of business operation,ignore the low carbon products and the product difference of traditional products,and the product has the difference under the market reaction.In this paper,the carbon cap and trade policy and product difference considering two factors,enterprise comprehensive consider policy and requirements under the optimal low carbon production decisions.To the enterprise optimal production strategy,the study found in low carbon production cost is lower than a certain limit,the enterprise at the same time to the market with low carbon products and traditional products,can increase product sales,increase enterprise profits.In the research on firm's production and carbon emissions within carbon cap-and-trade,most papers focus on the operational decisions neglecting the marketing aspects that environmental products are different from the traditional products.We analyze the low-carbon production problem considering cap-and-trade and consumers' different willingness-to-pay for two products.In firm's optimal production decisions,we found that when the low-carbon cost is lower than a threshold,low carbon products can be produced,leading to a higher demand and a profit increment.For the cap-and-trade effects on firm's production quantity and total carbon emissions,we found that firms will adjust the prices of two products and production quantities according to the carbon price in the carbon trading market.Carbon pricing can promote the low-carbon production,or depress it.As to total carbon emissions,cap-and-trade can always achieve the effect of emission reduction,and the carbon reduction quantity is increasing the carbon price.2.Firms'environmental production when consumers show premium differenceConsidering the consumers' heterogeneity in the market,in this paper we divide the consumers by the environmental premium level in the market into two segments:the green segment and the primary segment.With market segmentation,the firm will determine the optimal prices and quantities of green product and traditional product simultaneously.Our research found that the firm need to adjust the green product position according to the green segment ratio and the segments' premium level.YWhen the green segment ratio is high,firm will set high prices for green products,thus forming the market equilibrium that:green products are only sold to the green segment,traditional products are only sold to the primary segment;When the green segment ratio in the market is relative low,the firm will set a lower price for green products,thus that green products and traditional products are sold to both the green segment and the primary segment.3.Competition effect on firms' environmental production decisionsCompetition has great influence on firms' environmental production strategies.Based on a monopolist who produce two products case,we further analyze the duopolies best production decisions where a green manufacturer compete with a traditional manufacturer.In the duopoly case,we investigate a game two players move at the same time and a game the green producer as an entrant moving later than the traditional producer.In the simultaneously decision,there exists a unique Nash Equilibrium in given green segment ratio.In Nash Equilibrium,there exists cost threshold for green production.Compared to the monopolist case,cost conditions for green production is relaxed in simultaneously moving competition.It implies competition will promote green production.In simultaneously moving competition,the profits of traditional firm is decreasing in the green segment ratio.As to the green firms,his profits can decrease in the green segment ratio because of a aggravated competition in the green segment.Considering the case when the green firm is a new entrant,if the traditional firm does not anticipate the later entrant,the green firm can enter the market in a high cost condition.And the entrant will decide the green product's price according to the green segment ratio and his production costs.If the traditional firm anticipates the later entrant,he will decide whether to deter the green firm form entering the primary segment.In Nash Equilibrium,we found that when the green production cost is high,the unique NE exists that the green firm cannot enter the primary segment and green products are sold only to green segment.When the green production cost is relatively low,traditional firm will decide his determent decide according to the green segment ratio in the market.When the green segment ratio is small,traditional firm will allow the green firm into the primary segment,otherwise,the traditional firm will deter the green firm from entering the primary segment by lower the traditional product's price.In competition with first and second move,the cost condition for green production is further relaxed compared to the simultaneously move case.In firms' profits,we found that two firms'profits can increase in the green premium,and both firm can profit more when the green segment ratio increases.This paper investigate the traditional firm and the green firm 's production strategies considering the three aspects:cap-and-trade regulation,consumers' premium differentiation and competition.We give the best product prices,quantities and green production cost conditions in different cases.The findings provide literature supports and managerial insights into the environment policy making,traditional producers'production transformation and the green firms to make a proper marketing strategy.