Optimal advertising and pricing for new green products in the circular economy

Bin Shen, Shenyan Liu, Ting Zhang, Tsan Ming Choi

Research output: Journal article publicationJournal articleAcademic researchpeer-review

16 Citations (Scopus)

Abstract

In the circular economy era, environmental sustainability is critical, and both green and non-green products with similar functions co-exist in practice. There is little doubt that these two types of products are competing and may substitute one another even though one is more environmental friendly than the other. In this paper, we build analytical models to explore the optimal advertising and pricing decisions for a green product in the presence of a non-green product substitute. We investigate both simultaneous and sequential pricing strategies under which there are three possible pricing scenarios, namely: 1) both prices of green and non-green products are determined simultaneously (Strategy IP), 2) the green product's price is decided first and then the non-green product's price is determined (Strategy GL), and 3) the non-green product's price is decided first and then the green product's price is determined (Strategy NL). We find that the sequential pricing strategy is more profitable than the simultaneous pricing strategy for both green and non-green supply chains. It is interesting to prove the existence of “second-mover advantage” in the pricing game. Moreover, we identify that if the green supply chain uses Strategy NL, it could achieve a better performance in profit and minimize the corresponding environmental impact. If the green supply chain is truly socially responsible, it should design a product with low substitutability, so that the environmental impact can be enhanced. Furthermore, our numerical results indicate that Strategy IP never performs the best in terms of consumer surplus and social welfare when the product substitution level is sufficiently high. Findings of this paper contribute to the literature on cleaner production systems in the circular economy era.

Original languageEnglish
Pages (from-to)314-327
Number of pages14
JournalJournal of Cleaner Production
Volume233
DOIs
Publication statusPublished - 1 Oct 2019

Keywords

  • Advertising
  • Circular economy
  • Green product
  • Pricing
  • Product substitution
  • Supply chain

ASJC Scopus subject areas

  • Renewable Energy, Sustainability and the Environment
  • Environmental Science(all)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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