Production Strategy Selection and Carbon Emission Reduction with Consumer Heterogeneity under Cap‐and‐Trade Regulation

In literature, the firm’s selection of dual‐product strategy under cap‐and‐trade regulation and the optimal emission reduction decisions are not well studied, especially through an analytical approach. We develop a theoretic model to investigate the firm’s selection on three product strategies in the presence of cap‐and‐trade policy, including two single product strategies and a dual‐product strategy, and identify two types of consumers: consumers with low‐carbon preference and regular consumers. Our analysis shows that, (i) in the absence of cap‐and‐trade policy, it is optimal to adopt dual‐product strategy, but in the presence of this policy, it is optimal to adopt dual‐product strategy or low‐carbon product strategy. (ii) Compared with ordinary product strategy, adopting a low‐carbon product strategy or dual‐product strategy benefits the firm under cap‐and‐trade regulation. (iii) The additional cost of producing low‐carbon product has an impact on the firm’s product strategy selection under cap‐and‐trade regulation. When it falls below a certain threshold, it is optimal to adopt a dual‐product strategy; otherwise, it is optimal to adopt a low‐carbon product strategy. Our research can provide reference for firm’s decision‐making and government’s policy formulation.