Pricing and quality investments in a mixed brown-green product market

Abstract

Sustainable Supply Chain Management (SSCM) has assumed a position of prominence for academics and industry over the last two decades. The sustainability literature shows that typically manufacturers aim to optimize their pricing and greening level decisions in a mixed (green and brown) consumer market. In this work, we capture a manufacturer’s classic dilemma on the pricing of green and brown products, and greening investments, while subject to budget constraint. We compute and analyze the variations of optimal decisions over time. Our findings underscore the importance of investing in greening technologies and learning for the survival of green products. Furthermore, we show that a manufacturer’s optimal pricing strategy is to enter the market with a lower price for the green product and to increase it over time, eventually, surpassing the price for the brown product. Our analysis reveals that the greening level attraction can nullify the effect of a high price on the green product, resulting in higher green demand than brown. Higher green product demand is a win-win situation for both the manufacturer and the environment.