Impact of regulatory intervention and consumer environmental concern on product introduction

To meet consumer expectations for greener and better quality products and to ensure effective compliance with emissions regulations, firms have begun investing in improving the quality and greenness (low carbon level) of existing products. Emissions regulations currently restrict carbon emissions from product manufacturing rather than the emissions from the use of sold products. However, a large amount of carbon may be emitted from the use of products. Motivated by these issues, we analytically investigate the impact of environmental concern and the policies of regulators, and consumer environmental concern on product introduction. Our results show that (i) whether emissions trading regulations benefit firms depends on the quality improvement capability, and the interaction between emissions price and allowed emissions cap; (ii) the environmental concern of consumers helps firms obtain higher profits when quality improvement capability is relatively high, and always benefits environmental performance; and (iii) relatively low environmental concern set by regulators is detrimental to the maximization of social welfare, whereas high regulator environmental concern helps to maximize social welfare but at the expense of reducing firms’ profits.