Green process innovation and differentiated pricing strategies with environmental concerns of South-North markets

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Green process innovation and differentiated pricing strategies with environmental concerns of South-North markets

Dai, Rui / Zhang, Jianxiong

Highlights•Optimal green process innovation and differentiated pricing strategies are studied.•Carbon tariff decreases innovation, and domestic price but increases foreign price.•A less binding emission cap enhances innovation but cuts domestic price.•Higher tariff rates decrease export, the firm’s profit and Southern social welfare.•A higher emission cap increases the firm’s revenue and Northern social welfare.

AbstractThis paper investigates the green process innovation and differentiated dynamic pricing strategies for a Southern firm under a two-market framework where a North country imposes a carbon tariff and a South country announces an emission cap. Results from the dynamic optimization problem show that carbon tariff decreases innovation, domestic price, the firm’s profit and the Southern social welfare but increases foreign price. A less strict binding emission cap enhances innovation, the firm’s revenue and the Northern social welfare but cuts domestic price. The domestic price can be higher, lower or intersect with its counterpart in the North under different situations.