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This paper studies how two technologies, Zero-Sum and Synergy, impact the market structure strategy for green products. We develop mathematical models to determine the optimal price, traditional quality, and environmental quality in order to maximize profit. We also perform sensitivity analysis to derive conditions under which a firm tends to adopt the Market Segmentation strategy rather than the Mass Marketing strategy. Our results indicate that to increase total green quality, investing in technology improvement to enable Synergy is more effective than introducing more products. Finally, we investigate the effects of government regulations on the selection of these two marketing strategies and two technologies.

Due to the importance of environmental issues, governments are beginning to make laws and regulations to protect the environment. For example, the Restriction of Hazardous Substances (RoHS) of the European Union restricts the use of six toxic materials in the manufacture of all electronic and electrical equipment. Meanwhile, consumers are paying more attention as to whether corporations are environmentally friendly. They are increasingly willing to purchase eco-friendly or so called green products even though these products are often more expensive. Since protecting the environment has emerged as one of the hottest global trends, it is important for firms to understand how to design and manage green products. In recent years, we observe that many companies have evolved from Zero-Sum technology to Synergy technology. In Zero-Sum, it costs more to maintain the same level of environmental quality when trying to enhance traditional quality. A typical example of Zero-Sum technology can be found in the automobile industry. The fuel efficiency (i.e., environmental quality) generally deteriorates in order to increase the engine horsepower (i.e., traditional quality). As a result, additional investments are required to overcome the deficiency in environmental quality. In Synergy, the cost of maintaining the same level of environmental quality is less when the firm enhances traditional quality because the investments employed to improve traditional quality also improve environmental quality. Fig. 1 uses an LCD example to illustrate the evolution from Zero-Sum to Synergy technology. The conventional LCD uses a backlight as the light source and we see the images after the light goes through color filters. This type of technology is known as the transmissive mode. In this mode, the power consumption will be higher when increasing the brightness of the monitor. A company recently developed a new technology called the transflective mode in which a half-mirror is added. The half-mirror reflects the external light to create a second light source. Hence, the brightness is increased but the power consumption of the backlight is decreased due to the availability of the second light source. In other words, the investments to increase traditional quality (brightness of the monitor) also contribute to the enhancement of the environmental quality (reduction of power consumption). Therefore, the cost of maintaining the same level of environmental quality is less when the firm employs Synergy technology. Full-size image (29 K) Fig. 1. An example of synergy technology. Figure options Based on the above observations, we believe it is essential to study how technology evolution impacts green product strategies. To the best of our knowledge, this paper is the first to study how two technologies, Zero-Sum and Synergy, impact green product strategies. Mathematical models are developed to determine the optimal price, traditional quality, and environmental quality to maximize profit. We examine under what conditions the company tends to adopt a Market Segmentation strategy (two products are offered to two different market segments) and under what conditions the firm tends to adopt a Mass Marketing strategy (only one product is offered to both segments). Furthermore, we discuss how government regulations impact the results and how technologies interact with government regulations. The rest of the paper is organized as follows. Relevant literature is reviewed in Section 2. The proposed problems are defined in Section 3. We develop mathematical models for the problems and obtain optimal solutions in Section 4. Results and managerial insights are discussed in Section 5. Finally, the paper is concluded with a summary and several future research directions in Section 6.

Because of the rising awareness of environmental protection and stringent regulations, the ability to manage environmentally friendly or so called green products becomes an important competitive advantage. To the best of our knowledge, this paper is the first to study how two technologies, Zero-Sum and Synergy, impact the market structure for green products. Mathematical models are developed to decide on the optimal price, traditional quality, and environmental quality to maximize profit. Moreover, we derive conditions under which the company tends to adopt Market Segmentation rather than Mass Marketing and show that to increase total green quality, investing in technology improvement to enable Synergy technology is more effective than introducing additional products. The effects of government regulations are also investigated. We find that there is a region, called the danger zone, where the government sets stricter environmental regulations, the total green quality is actually less. We derive the existence condition of the danger zone and show that to prevent the danger zone the government should encourage companies to reduce the setup cost of introducing an extra product instead of developing Synergy technology to replace Zero-Sum technology. There are several opportunities to extend our study. First, this paper assumes the company is a monopolist. Future studies should relax this assumption so as to examine how competition may change the managerial insights. Second, other green product strategy issues such as timing of product introduction should be investigated. It would be interesting to see how technology evolution impacts those decisions. Third, the cost of environmental quality is assumed to be cE+cTcE+cT in Zero-Sum technology and cE−cTcE−cT in Synergy technology, representing two extreme cases. Frequently the cost of environmental quality may fall between these two extreme cases. In the future, it will be interesting to examine how various cost relationships between traditional quality and environmental quality impact the managerial insights. Last, although commonly seen in the production and economics literature, the function forms used in this paper are quite theoretical. It would be a meaningful extension if a real world case can be used to confirm the managerial insights derived in this paper.