Backward channel decentralization vs integration: Roles of market coverage and emission abatement under competition

We explore competitive backward channel strategies with products differentiated by environmental performance (measured by emission abatement). An analytical model is developed to analyze the strategic impact of backward decentralization and integration on firms' emission decisions, profits, and welfare under different market coverage scenarios. It compares different channel structures to characterize competing manufacturers' equilibrium backward channel strategies. We reveal that the manufacturers' emission abatement decisions and channel strategies critically depend on the level of market coverage. First, under full market coverage, backward channel integration shrinks the gap between the products' emission abatement. In contrast, under partial market coverage, backward channel integration enlarges the products' emission abatement gap. Second, the manufacturers strictly prefer backward channel decentralization over integration under full market coverage, but strictly prefer backward integration over decentralization under partial market coverage. Moreover, the manufacturers' backward decentralization (integration) constitutes a win-win equilibrium channel strategy under full (partial) market coverage. Third, the socially optimal welfare can be achieved with the manufacturers’ backward channel strategies under partial market coverage, but not under full market coverage. Our findings provide practical implications from different perspectives including green product development and distribution channel strategies, as well as environmental policy makers in terms of green innovation and industry regulation. We finally investigate multiple extensions to verify the robustness of the results.