Optimal Pricing and Abatement Effort Strategy for Low Carbon Products

Abstract

Nowadays, environmental issues have received increasing attention from experts. The main cause is the increase of carbon emissions in the atmosphere, so it is urgent to reduce carbon emissions. In order to establish the optimal pricing strategy as well as the emission reduction effort strategy for companies who produce and sell low carbon products, this paper proposes an optimal control model for low carbon products. The reduction of the carbon emission for the product is described dynamically by a differential equation, and the analytical expressions of the optimal pricing and the emission abatement strategies are derived using the Pontryagin’s maximum principle. Finally, the numerical experiments are used to explain the results obtained. The results show that companies producing and selling low-carbon products must pay more attention to the amount of carbon emission reduction in their products, and make more efforts to reduce emissions in order to make more profits. Additionally, the parametric analysis shows that expanding market size and reducing inventory depletion can be equally helpful in shortening the sales cycle and boosting profits.