Green Product Development with Consumer Heterogeneity under Horizontal Competition

In this paper, we explore the pricing and greenness issues of two competitive firms without and with consumer heterogeneity. We derive and compare the optimal solutions and profits employed by firms under different scenarios. Then, we identify the effects of consumer heterogeneity under different competition intensities. The analytical results reveal that if market competition is at a relatively low level, we find that: (i) when the greenness sensitivity of consumers with no preference is sufficiently small, more consumers have high environmental awareness, and companies easily achieve their environmental goals as well as economic goals; (ii) when the greenness sensitivity of consumers with no preference is at a medium level, as the fraction of consumers with high environmental awareness increases, and the firm might achieve economic goals at the cost of reducing environmental goals; and (iii) when the greenness sensitivity of consumers with no preference is at a high level, the fraction of consumers with high environmental awareness increases, but firms might have more difficulty achieving their environmental and economic goals. On the other hand, if the market competition is at a relatively high level, the presence of consumer heterogeneity can help improve environmental goals, but make achievement of economic goals difficult.