Green technology opening, imitation, and investment: firms’ strategic technology choices in competitive markets

Abstract

Green firms are considering whether to open or close their new green technologies. Opening up green technology can induce imitation and transformation in traditional firms but intensify competition in the green product market. Meanwhile, green technology imitation leads to the market share transfer effect, which is a supply-side network externality that gains consumer trust and increases the market share of green products as more firms adopt the technology. However, traditional firms also face a dilemma in green technology imitation choices due to the market cannibalization problem. This study constructs a game-theoretic model with one green firm possessing proprietary green technology and one traditional firm to investigate firms’ strategic interactions among green technology opening, imitation, and investment. We find that the technology opening strategy may constitute equilibrium if the market transfer share or the market size of green products is relatively large. Accordingly, the traditional firm produces green products by imitation when the green firm opens its technology. In addition, the technology opening strategy improves social welfare compared with the technology closing strategy, thus forming a win-win situation. We further extend the analysis by considering the technology licensing contract model, consumer-side network effects, the sequential quantity game model, market demand uncertainty, and the government’s subsidy policy.