This project investigates under what conditions green products (e.g. highly energy efficient appliances, organic food, low-harm chemicals, electric vehicles…) become affordable to the mass consumer market.
Companies often invest in green products to differentiate themselves and offer a higher-quality product that can fetch a higher price. They use environmental quality to price discriminate. Hence, the products cater to richer (less price-sensitive) consumers. When can we expect that this will be followed by a “green product cycle” – the process by which a product goes from a niche expensive good to an affordable mainstream good?
Theoretically, I study two levers. First, I investigate if the degree of inequality of consumers’ spending power affects the green product cycle. Second, I investigate how bans on low environmental quality goods affect affordability of high environmental quality goods.
Empirically, I use the Nielsen Homescan dataset to study the case of organic products in the US. Preliminary results suggest that demand for green is increasing, which stimulates green innovation; but heterogeneity between consumers creates incentives for firms to segment the market, which limits the spontaneous mainstreaming of green products in the absence of regulation.
Project funded by the Sustainability Hub of Rebuilding Macroeconomics Network.