Wednesday, December 31, 2008

Economist's Notebook: A Green Game Theoretic Conundrum

Suppose you wished to see a greater proliferation and use of 'green' or natural cleaning products.  Would you, as a consumer, do better buying from companies such as Seventh Generation or Ecover that have been solely devoted to green products since their inception, or would you do better buying the green product from the decidedly non-green company?

On the one hand supporting the green companies will hopefully help them get bigger and grab a bigger market share and you would feel reasonably confident that they would stick largely to their green product line since it is such a part of their corporate identity.   This would, in the long run, hopefully lead to their becoming more and more dominant in the cleaning products business and support your original goal.  

On the other hand, you may wish to reward an established company in the hopes that you can prompt them to devote more and more of their energy to green products, will be able to leverage economies of scale and scope to provide a low cost green product that will encourage many new customers to try it.  The risk, I suppose is that they are not really concerned about the greenness of their company but sales and if they can use low priced green products to compete Seventh Generation away, they may just do so and then abandon green products altogether.

Thus was my thought process yesterday when I was confronted with a bottle of Green Works dishwashing soap for $3-something, or the Ecover stuff I usually buy that was $6-something.  I decided to go for the Green Works stuff.  My wife disagreed with me later when I brought it home.  I was convinced by the line of argument that went, if the goal is to get as many people using the stuff as possible, then who cares who makes it, what is important to get the price down to the point where people who only marginally care will switch.  My wife is more persuaded by the whole company ethos argument.  But as an economist I tend believe that good intentions are almost always swamped by market realities, and if you want real change in the habits of American consumer, you have to make it work economically.  Witness the Prius.  It was not until finally a car came along that was affordable, reliable and you didn't have to go the extra yard of plugging in or driving to the Biodiesel station that we saw mass adoption.  

Anyway, apparently the Sierra Club feels the same way I do.  They have taken a lot of flak for their support of Clorox, but I understand where they are coming from.    

2 comments:

Elimonah said...

The topic is similar to the "Fair Trade Dilemma". A few years ago retail coffee prices exploded. I had long been buying Fair Trade Coffee even over organic. To me it is the only piddly but real influence that everywoman can have on the Narco economy, pay farmers fair for coffee, give them alternatives to other crop. Prices exploded and our budget did just not allow for Fair Trade coffee anymore. We improvised, bought a used coffe roaster and purchased Fair Trade green coffee. A lot of work, a lot of smoke too. Then Costco started carrying their Kirkland StarBucks brand and it is Fair Trade! I actually called the company to congratulate them on their choice. My coffe price is down where I can afford it ($5/lb). I buy Fair Trade. It is from CostCo. I think more people will benefit from it than without CostCo.

Jeff Alworth said...

On the other hand, there's the "greenwashing" issue. The first point is that it may be the case that a large company heretofore exhibiting no interest in the environment has simply slapped "green" on the label. There are scads of examples of fradulence on this score.

But let's assume good faith. Is it really good faith? What percent of its revenue would a company sink into producing a green product simply as an advertising vehicle? Since it also generates revenue, it's better than advertising. If the company has no commitment to greening up, supporting such products serve no social goal.

Not an easy call.