Extending a Product Line with a Product Applying Green Technology

Given the rise in consumers' ecological awareness, many firms currently offering only nongreen products are extending their product lines with products applying green technology. We examine a monopolist's product line extension strategy and pricing strategy by explicitly considering the environment-related utility and spillover effects of a green product. The results show that a firm should introduce its green product when the spillover effects and the cost of the green product are small or the spillover effects are large enough. The firm should utilize a penetration pricing strategy for the functionally inferior green product when the environment-related utility is small or when the environment-related utility is moderate and the spillover effects are relatively small. Otherwise, the firm should adopt a skimming pricing strategy. However, the firm should adopt a penetration pricing strategy for the functionally superior green product when the spillover effects are relatively large and a skimming pricing strategy otherwise. Interestingly, the firm's total profit may decrease with the spillover effects when the spillover effects are small.