Platform subsidy policy design for green product diffusion

https://doi.org/10.1016/j.jclepro.2022.132039Get rights and content

Highlights

  • Two-sided market theory can is used in the scenario of green product diffusion.

  • Online platforms is an vital intermediary for acquiring green information and purchasing green products.

  • Online platforms offer subsidies for green products to increase profits.

  • Green product subsidy policy needs to change according to market size.

  • Subsidies to consumers are more beneficial to expand the market.

Abstract

With the advent of information technology, online platforms have become an vital intermediary for acquiring green information and purchasing green products. This study uses two-sided market theory to estimate the size of the green market for green subsidies under various targets. First, we compare the differences in the equilibrium market size and platform profits for three scenarios (no subsidy, maximum platform profits, and maximum social welfare). In addition, we measure the basic conditions for start-up subsidy schemes. Finally, we employ numerical analysis to explore how other critical factors, including cross-network externalities, product pricing, and research and development (R&D) costs, impact the market size in three scenarios. The result demonstrates how online platforms use cross-side network externalities to design asymmetric pricing strategies or subsidy policies to develop the market for green products. It has managerial implications for online platform owners or politicians in subsidizing the expansion of green products.

Introduction

Green products (GPs) are defined as products that use fewer resources, have lower impacts and risks to the environment, and prevent waste generation already at the conception stage (Durif et al., 2010, Dangelico, 2016). Subsidies for GPs play a crucial role in their diffusion and achieving sustainable economies (Li et al., 2021, Ringel et al., 2016). Several countries and regions around the world have implemented green subsidy policies. For example, China, the EU, and Japan all offer green consumption subsidies for new energy vehicles (Shao et al., 2017, Newbery, 2016, Wang and Matsumoto, 2021). Prior research found that policymakers offered two types of green subsidies: green consumption subsidies (GCSs) and green innovation subsidies (GISs) (Kieckhäfer et al., 2017, Losacker, 2021, Chen et al., 2006). The majority of related papers analyze subsidies using the Stackelberg game framework (Li et al., 2020, Hong et al., 2020). With the widespread use of information and communication technologies (ICTs), the concept of government as a platform (GaaP), which is a vision of the public sector as a platform, has been raised by O’Reilly (2011). It means a shift in the way public policy is transmitted and that online platform firms should also participate in society’s governance (Cordella and Paletti, 2019). Especially, online platforms are critical intermediaries for acquiring information and purchasing products (Bassano et al., 2017). Additionally, the fees charged by online platform companies for GPs often directly impact the product’s final selling price, as well as its sales volume (Bajo-Buenestado and Kinateder, 2019). Therefore, how online platform companies and the government should provide subsidies to GPs has become an urgent issue.

Two-sided market theory provides a theoretical foundation for platform pricing. There is evidence from literature that platform providers can act as market intermediaries by straddling two markets at the same time, helping them to set prices more efficiently as they internalize the cross-side network externalities (Hagiu, 2009, Fehrer et al., 2018). There are cross-side network externalities, whereby the utility of participants in one group (e.g., consumers) depends on the number of participants in the other group (e.g., product producers). Recently, several researchers have applied a two-sided market theory to the study of competitive strategies of online platform companies, such as e-commerce, search engines, and social media (Kim et al., 2021, Stallkamp and Schotter, 2021). A study by Hagiu and Hałaburda (2014) demonstrated that online platform companies can acquire new customers through subsidies and defeat peer competition. Only a few studies have examined the impact of platforms on innovation and GP diffusion (Jung et al., 2019, Jang et al., 2018). Jang et al. (2018)noted that a balanced government policy for electric vehicles (EVs) and gasoline vehicles (GVs) would facilitate EV diffusion more than would subsidizing EV consumers. Existing research has ignored the collaboration between different online platform companies’ business types, research and development (R&D) costs, and consumer environmental awareness (CEA). Nevertheless, R&D costs are an important investment for companies that manufacture GPs (Hötte, 2020, Dangelico, 2016). Furthermore, CEA influences consumers’ purchasing decisions for GPs (Hong et al., 2020, Li et al., 2020). Hence, these two factors should also be taken into account in the model in the context of the market for selling GPs.

In order to fill these research gaps, we construct a theoretical model based on the two-market theory and take CEA and R&D into account. We examine how the widespread use of ICTs and online platforms, as well as government subsidies can help the diffusion of GPs. First, we consider that the target of online platforms and policymakers are different. Thus, we design three scenarios: (1) no subsidy; (2) online platforms set green subsidies (maximizing platform profits); (3) government involvement in setting green subsidies (maximizing social welfare). Then we conduct a numerical analysis of specific factors affecting green subsidies and the impact of three scenarios. In particular, cross-network externalities, prices, and R&D costs. Finally, we conclude the implication of the study.

The contribution of this paper is mainly twofold. This paper examines the application of two-sided market theory in designing GPs subsidies. Specifically, we consider CEA and R&D factors, which are critical to manufacturers and customers of GPs (Shao et al., 2017, Chen et al., 2006, Chen and Chen, 2008). ICTs have brought supply and demand closer together, making it easier for people to share information and buy products. Thus, it is imperative that the factor of cross-network externalities be taken into consideration when establishing green subsidies. However, existing research based on the Stackelberg game framework does not take into account cross-network externalities. The two-sided market theory model can explain the mechanism of government influence as well as that of online platform companies in formulating green subsidies. Additionally, this provides management implications for platform companies and policymakers to formulate subsidies that are beneficial to themselves and the diffusion of general practices. According to the online shopping behavior of consumers, online platforms can be categorized as information acquisition platforms (e.g., Facebook, Google, or Weibo) and e-commerce transaction platforms (e.g., Amazon and Taobao). The GP market can be influenced by adjusting or reducing advertising fees, trading commissions, or even offering subsidies.

The rest of this paper is organized as follows. Section 2 presents a literature review of related work. Section 3 presents the model and derives the equilibrium results. Section 4 describes the numerical experiments conducted under different conditions. Section 5 discusses the findings and offers research insights. Section 6 summarizes the research and suggests directions for future research. In addition, all proofs are presented in Appendix.

Section snippets

Literature review

Our study is inspired by previous studies of the two-sided market theory and green subsidy policy. This literature is reviewed below.

Problem description and model assumptions

We constructed the model based on two-sided market theory (Bolt and Tieman, 2006, den Broeke et al., 2018). Accordingly, an online transaction for users often happens based on a two-stage process, i.e., information acquisition, purchase decision (Häubl and Trifts, 2000). We divide the platform into information acquisition platforms (e.g., Facebook, Google, or Weibo) and e-commerce transaction platforms (e.g., Amazon and Taobao). In the first stage, green consumers need to sift through massive

Numerical analysis

For the purpose of verifying the validity of the conclusions, this paper uses MATLAB to numerically simulate market size, platform profits, and subsidies derived in different situations. The simulation parameters are set as in Table 4.

Note that for the simplicity of notations, the case without subsidies is denoted as scenario 1, the case using subsidies to maximize the platform profit is denoted as scenario 2, and the case using subsidies to maximize social welfare is denoted as scenario 3.

Discussion

As online platforms are involved in the dissemination of information and the sale of GPs, it has become more important than ever to analyze the impact of their subsidy strategies. Only a few studies have applied two-sided market theory to the study of GPs. The assumption of competitive relationships between platforms in these studies and the disregard of CEA and R&D costs in these analyses have rendered developed models incompatible with reality. The present study proposes a two-sided market

Conclusion

This paper investigates the impact of green subsidies offered by online platforms on the size of the two-sided market for GPs that they build. The article examines the effects of three green subsidy schemes (NS, PP, and SW) on the adoption of GPs and green production technologies. Our study indicates that the proactive provision of green subsidies by online platforms contributes to the expansion of the market size of GPs due to the fact that they have a specific market size. When certain

CRediT authorship contribution statement

Mo Chen: Conceptualization, Methodology, Writing – original draft. Weixian Xue: Software, Investigation, Validation. Jingdong Chen: Visualization, Supervision, Writing – review & editing, Funding acquisition.

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Acknowledgments

This work was supported by the General Program of Shaanxi Province Fund of Social Science of Shaanxi Province (grant number 2016R015). we would like to thank the editor and the anonymous referees for their valuable comments on this paper.

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