Strategic Licensing of Green Technology in a Competitive Market with Eco-Conscious Consumers

Abstract

As environmental awareness grows among consumers, technology-intensive firms increasingly face a strategic dilemma of whether to retain proprietary green technologies for exclusive competitive advantage or license them to direct competitors to diversify revenue streams. In this paper, we examine this tension in a duopoly where a technology developer may license her green technology to a competing manufacturer in return for licensing fees. In our model, consumers are segmented into eco-conscious and ordinary types, and social welfare explicitly accounts for the environmental damage caused by the total carbon footprint. By analyzing equilibrium outcomes under both the licensing and no-licensing regimes, we identify the technology developer’s initial carbon label as a pivotal determinant of the optimal licensing strategy. In particular, licensing is profitable only when the initial carbon label falls below a critical threshold; above this threshold, licensing erodes profitability and is therefore not offered. Importantly, we demonstrate that, in some cases, licensing the green technology to the competitor enhances both consumer surplus and social welfare, thereby generating Pareto-improving outcomes for all stakeholders. Our sensitivity analysis further clarifies how key factors, such as the proportion of eco-conscious consumers, the intensity of consumer environmental concern, and the degree of product substitutability, shape the optimal licensing strategy. Finally, we extend the baseline model to a setting with multiple competing manufacturers and confirm the robustness of our key findings.

Keywords

Green technology licensing / eco-conscious consumers / carbon label / welfare analysis / sustainable operations

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Systems Engineering Society of China and Springer-Verlag GmbH Germany

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