Game-theoretic models for green and non-green production in a duopoly with offshore outsourcing

This thesis studies the strategic game between firms’ outsourcing decisions and government tax policies in a Bertrand duopoly market. In the main model, firms’ domestic production is assumed to be green production, while outsourcing is assumed to involve low cost, non-green production. The government regulates the market by setting outsourcing taxation, facing a dual choice between environmental protection and national revenue. Based on this, this thesis constructs a two-stage game model, derives the subgame perfect equilibrium, and introduces a monopoly model and a pure Bertrand model without outsourcing as control groups for cross-sectional comparison. The results show that • as the marginal cost of green production increases, duopoly firms tend to significantly increase the proportion of non-green outsourcing to offset cost pressures. This strategic shift to low-cost overseas supply chains releases cost benefits in fierce market competition but ultimately leads to a decrease in the final market product price; • consumers’ environmental sensitivity significantly inhibits firms’ outsourcing tendencies, while high government fiscal demands prompt regulators to relax tax regulations, thus tacitly allowing the expansion of outsourcing; • a cross-sectional comparison shows that the complete monopoly model performs the best in terms of both corporate profit and social welfare; while the purely green production model without outsourcing completely eliminates non-green pollution, its product prices are forced to rise sharply as green costs increase due to the lack of a cost buffer mechanism. These findings suggest that in a duopoly market, moderate outsourcing and appropriate taxation can simultaneously maintain overall social welfare and alleviate corporate green pressures. This provides decision-making references for governments adjusting taxes when facing different fiscal pressures and for firms adjusting their outsourcing ratios when facing high domestic green costs.