Green technology innovation and pricing decisions considering carbon footprint and government subsidies

Abstract

We have developed three distinct decision models to examine the influence of consumer's carbon footprint sensitivity level and government subsidies on the green technology innovation level of an original equipment manufacturer (OEM), as well as pricing decisions for both the OEM and a third-party remanufacturer (TPR). Our study provides valuable insights for businesses to determine the appropriate green technology innovation level and manage the adverse effects of carbon footprint. The results show that the OEM will set the green technology innovation level according to the consumer's carbon footprint sensitivity level and the remanufacturing emission reduction coefficient. Only when there is government subsidy and the carbon footprint sensitivity level exceeds a certain threshold, does the profit of OEM increase with a rise in carbon footprint sensitivity level. Otherwise, the carbon footprint only harms the OEM's profit. While the consumer's carbon footprint sensitivity level can help reduce the detrimental environmental impact of products, it can also diminish consumer surplus and social welfare. However, government subsidies have the potential to mitigate the adverse effect, making the consumer's carbon footprint sensitivity level an incentive to increase consumer surplus and social welfare.