Transformations  in
Business & Economics

Price Competition and Clean Production in the Presence of Environmental Concerns
Chung-Chiang Chen

ABSTRACT. When consumers are willing to pay an extra premium for green products to reduce environmental impacts of consumption due to environmental concerns, it encourages some firms to invest in clean technologies. Once the technology level of clean production is determined, information barriers are assumed to be not existent due to the overwhelming eco-labelling system in the market and thus consumers are fully informative of the environmental attributes of green products This paper presents a pricing model consisting of two producers: one is the clean producer (the CP) and the other is the non-clean (or conventional) producer (the NP) and assumes that the two firms are identical with respect to cost and product quality except the environmental attributes of green products. In this paper, we examine the impacts of environmental concerns, cost of clean production, cross price sensitivity (market competition effect) and production costs on the choice of clean technology and the two producers’ pricing behaviours.

The most important finding of the analysis demonstrates that environmental concerns play a vital important role in growing the market share of green products and encouraging the CP to upgrade the technology level of clean production. Furthermore, an increase in environmental concerns leads to rise up of price, sales volume and profit of not only green products but also the non-green counterparts. This result may provide some implications for policy makers that the promotion of environmental programs to aware consumer’s environmental concerns is an effective win-win-win strategy since it provides benefits to the two producers and also treats the environment in a sustainable way.

KEYWORDS: pricing, cross price sensitivity, green marketing, green consumption, environmental concerns.

JEL classification: C30, M30.