Green Technology Innovation and Product‐Line Strategy Under Carbon Tax Policy

ABSTRACT Facing the carbon tax policy, green technology innovation decisions and product strategy are important for firms. We develop a manufacturer‐retailer Stackelberg game to analyze three strategies: only producing the old‐generation product, only producing updated‐generation products, or both. We have three key findings. Firstly, when only the updated generation is produced, the carbon reduction rate increases first and then decreases along with the carbon tax. That is, an excessively high tax rate compresses the market and suppresses innovation, which serves as a warning to pure‐green enterprises. Secondly, under high tax rates, the dual‐product strategy actually performs better in terms of environmental performance. The internal competition between updated‐generation and old‐generation products drives continuous innovation. Thirdly, there is a conflict in strategic preferences between manufacturers and retailers: Under the low carbon tax rate, the manufacturer prefers old‐generation products, whereas the retailer prefers newer ones, revealing the crucial role of channel coordination in the green transition. From the perspective of social welfare, the dual‐product strategy is optimal when the carbon emission damage is relatively low. When the damage is relatively serious, under a low carbon tax rate, the focus should be on updating products, whereas under a high tax rate, a dual‐product strategy should be adopted to take the lead. These findings guide firms to dynamically adjust their product portfolios based on tax rates, and policymakers need to design differentiated carbon taxes for different industry structures.