An Optimal Energy Efficiency Investment and Product Pricing Strategy in a Two-Market Framework

Abstract

Energy efficiency (EE) level has become an essential environmental index of products and can be improved by EE innovation. With consideration of EE level evolution and market differentiation, an optimal control model under a two-market framework is proposed to investigate EE innovation and two-stage pricing strategies. Impacts of consumer environmental awareness (CEA) and EE standard on optimal investment and pricing strategies are discussed. Results indicate that environmental awareness and standard result in strategy shift. As environmental awareness increases, the EE level driven by investment strategy may switch from staying in traditional market, to expanding markets by entering the green market and remaining at the standard, till capturing the green market and keeping above that standard. Impacts of standard on strategy shift exhibit a tricky trend. For loose and appropriate standards, the producer prefers to invest more to expand market by entering the green market with the increase of standard. However, a stringent standard may prevent the producer from entering the green market. In addition, optimal prices in both stages are positively impacted by the CEA and the standard.

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