Strategic interactions between product line design and carbon tax regulation

Along with carbon neutrality becoming recognized worldwide as one of the most effective ways to address global climate change and environmental challenges, there have emerged numerous attempts on the optimiza-tion of manufacturing and production management when facing carbon regulation. However, the previous literature considers mainly firms selling only single product variants, while consumer products in the real world are often sold in product lines. To gather theoretical guidance to achieve carbon neutrality, it is both necessary and urgent to explore the interactions between product line selling and carbon regulation. This paper analyzes the strategic interactions between product line design and carbon tax regulation. We show that a short product line may weaken policy makers' incentive for carbon tax regulation if the unit environmental damage of production is sufficiently small. We also show that a longer product line does not necessarily lead to a higher carbon tax rate (CTR) unless the unit environmental damage of production is not sufficiently large. Additionally, we identify the condition under which a firm can have more incentives to extend product line with a predetermined CTR (pre-CTR) than that with a post-determined CTR (post-CTR). That is, unless the product line extension fee is sufficiently large, a firm with a pre-CTR would have more incentives to extend product line than that with a post-CTR when the unit environmental damage is moderate.