Optimal pricing and product carbon footprint strategies with different carbon policies and its implications

Abstract

To mitigate the negative effects of climate change on human survival and development, many governments and organizations have put forward a series of carbon regulation policies to solve the problem of greenhouse gas emissions, such as carbon tax policy, carbon cap-and-trade mechanism, carbon labelling scheme. This paper develops three optimization models to explore the firm's optimal pricing and the product carbon footprint decision under these different policies. Further we also compare the equilibrium results among the above three models. Such comparisons throw clear insights in to the impacts of different carbon policies on the firm's pricing and the product carbon footprint decision, consumer market demand and their profits. Accordingly, some new and interesting findings are revealed through propositions and corollaries. It is hoped that all these conclusions and managerial implications may provide reference for the firms to make optimal decisions on pricing and product carbon footprint management, and provide some theoretical basis for the government to adjust and select carbon emissions policies.