Network externality, environmental regulation and firms' technology strategy choice: An evolutionary game analysis in a competitive market

Abstract

Abstract Compared with existing literature, the feature of this article is to investigate the mechanism of influence between the choice of firms' production technology strategy choice (green-tech or dirty-tech) and the environmental tax rate set by government in a competitive market exhibiting network externality. By applying evolutionary game analysis, it is shown that if the environmental tax rate very high or very low, thefirms would extensively select dirty-tech, while if the environmental tax rate is moderate, the firms prefer to select green-tech. At the evolutionary stable point, the fraction of the population of firms adopting green-tech (dirty-tech) increases (decreases) not only with improvement in the strength of network externality but also with the magnitude of the green-tech innovation. Besides, the social welfare increases with the increase of the strength of network externality. Specially, when the strength of network externality is constant, the social welfare exhibits an inverted-U shape under the effect of the magnitude of the green-tech innovation.