The optimal sales format for green products considering downstream investment

Abstract

With the increasing public awareness of environmental protection and the popularisation of suppliers' green production, a growing number of e-tailers are also investing in green products or services. The greenization of an e-tailer brings additional sales to the online channel but weakens the bargaining power of the supplier and further complicates the supplier's online channel format choice. This study focuses on the interaction between the e-tailer's green investment strategy and the supplier's choice of online channel format. First, we find that the e-tailer's investment forces the supplier to consider a new factor, the supplier's investment efficiency, which the supplier does not consider when the e-tailer does not invest and completely changes the e-tailer's own preferences. Second, we obtain the counterintuitive result that the supplier does not always benefit from the e-tailer's greenization; in the reseller channel, a supplier with a high investment efficiency is made worse off due to the increased retail price resulting from the e-tailer's investment. Additionally, the e-tailer will go green only when the upstream investment efficiency is high, regardless of the online channel format. The intuition behind this result hinges on each player wanting to free ride but worrying that the other has the same idea.

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