Non-linear pricing and conscious consumption

Abstract

We consider a duopolistic market in which a green …rm competes with a brown rival and both …rms o¤er two quality-di¤erentiated products. We study optimal non-linear contracts o¤ered by the two …rms when consumers: (i) are privately informed about their willingness to pay for quality, and (ii) di¤er in their environmental consciousness. We characterize how consumers with di¤erent valuations for quality self-select into …rms and show that the ranking of qualities, relative prices and pro…ts all depend on the interplay between consumers' valuations and …rms' cost heterogeneity. Interestingly, when consumers'valuations for quality are relatively low, the brown …rm does not o¤er a low-quality variety. This contrasts with the situation of full information, in which both …rms commercialize a high-and a low-quality variety. Hence, the lack of information about consumers'valuations may not only favor the green …rm in terms of higher prices and pro…ts, but also reduce the product range o¤ered by the brown rival.

Environmental Policies with Green Network Effect and Price Discrimination

“…As in Brécard (2013), we use the term green network e¤ ect to describe the fact that consumer satisfaction from buying the green variety is proportional to the market share of the green good. 11 Apart from Brécard (2013) and Grover and Bansal (2021), not much theoretical research has been carried out in this direction, even though recent studies acknowledge the importance of imitating the decisions of others. 12 A large body of theoretical literature followed Cremer and Thisse (1999) using models of vertical di¤erentiation to study the provision of environmental quality, under the assumption that the green good is of high quality and the brown good is of low quality (Moraga-Gonzales and Padron-Fumero, 2002;…”

“…Substituting (11) into …rm i's objective function, there remains to maximize pro…ts with respect to net utilities U i . This delivers the reaction functions of the two …rms, which describe the optimal utility left by …rm i = B; G to a -type consumer given the utility U i ( ) that the same consumer receives from the competing …rm i.…”