Abstract:

As environmental conditions deteriorate and climate change accelerates， consumers’ green preference continue to increase in order to reduce their carbon footprint. They will pay more attention to the firm’s environmental performance when purchasing products. Consumers who has green preference are willing to buy environmentally friendly products even if they cost a bit more. Meantime， several legislations， such as emission standard， carbon tax， carbon subsidy， and cap-and-trade system have been issued to reduce the emissions of carbon dioxide and other greenhouse gases by the regulators to deal with pollution reduction problems. The pollutant emissions are accumulated with the increase of production， which is not welcome by the environment and has a negative impact on firm’s reputation. Given the manufacturer’s actual emission of production， a reference level is introduced for emissions， which represents the number of emissions permits allocated to the firm by the regulator， and the market price of the carbon quota. Then the impact on the manufacturer’s profit of carbon quota is calculated with respect to actual emissions.As an important characteristic of firm’s environmental performance， green goodwill is an intangible asset that changes over time. In the dynamic equation of green goodwill， we use a parameter to scale the manufacturer’s environmental performance， i.e.， the gap between the actual emission and emission standard \sigma (\bar{e}-e)， which is interpreted as the consumers’ green preference. When the actual emission is smaller than the standard， i.e.， \bar{e}-e>\mathrm{0}， the environmental performance will have a positive impact on the green goodwill and demand. On the contrary， the impact is negative. The manufacturer’s advertising strategy also has a positive impact on the green goodwill. When the impact of environmental performance is negative， the positive effects of advertising strategy can offset the negative effects.From the short-term and long-term effects of actual carbon emissions， a differential game model is established that demands rely on green goodwill， it is found the advertising and pricing strategies of manufacturer and retailer in different decision-making models， respectively. The impact of key parameters on the strategies and profits is analyzed. Furthermore， the impact of retailer’s myopic behavior on the equilibrium strategies and outcomes is assessed. The retailer is myopic when she ignores the effect of today’s decision on future outcomes. In this setting， the strategies and profits are found and compared when retailer is myopic or far-sight. From the theoretical analysis and numerical simulations， it is found that the carbon quota price and consumers’ green preference coefficient are negatively related to the manufacturer’s advertising strategy and positively to the retailer’s pricing strategy. When the consumers’ green preference coefficient is zero， the retailer’s myopic behavior will have no influence on the advertising and pricing strategies. The environmental performance also has no impact on the decision of consumers. Green goodwill and profits are highest in the centralized decision-making model， and the manufacturer’s green goodwill in myopic scenario is higher than a far-sight scenario. Manufacturer prefers a myopic retailer because it can squeeze the retailer’s profit margins， consolidate the leadership and increase the share of profits. The results of the paper can provide implications for firms and policymakers.

Key words: cap-and-trade, differential game, consumers’ green preference, green goodwill, myopic