Multi-channel retailing and consumers’ environmental consciousness

Abstract

Facing consumers’ growing environmental consciousness, retailers need to consider the environmental consequences when choosing between e-commerce and traditional retailing. We develop a game-theoretic model to study the retailers’ channel selection problem in the presence of consumer environmental consciousness in both monopoly and duopoly settings. We find that even though the existence of consumer environmental consciousness drives the retailer toward more eco-friendly channel strategies, there exist conditions under which the retailer’s optimal channel strategy is still misaligned with environmental and social interests. Furthermore, we show that an increase in consumers’ consciousness, though seemingly reducing consumer utility, can in fact be welfare-enhancing. A reduction in the unit environmental impact of a channel (traditional or e-commerce), on the other hand, may lead to lower social welfare due to the retailer’s insubstantial carbon abatement. Finally, contrary to the conventional wisdom that competition tends to increase social welfare, we show that with consumers’ environmental consciousness, retail competition may result in social welfare decline. Our policy implication is that even though the presence of environmentally conscious consumers pushes firms to internalize the environmental consequences of their channel strategies, environmental regulations are still necessary to achieve social welfare maximization.