RIEB, Kobe University

Product Innovation in Response to Environmental Standards and Competitive Advantage: A Hedonic Analysis of Refrigerators in the Japanese Retail Market

The purpose of this study is to analyze whether a manufacturer's product innovation in response to environmental standards produces a competitive advantage, as the Porter hypothesis suggests. If a product with environmentally friendly attributes that are innovated in response to environmental standards is preferred in the market, the product can receive a price premium for its attributes. The main findings from our hedonic price regression for refrigerators, using Japanese retail market data during the period 1998–2012, are as follows. First, the attribute-adjusted refrigerator price has decreased drastically in last 15 years, which implies that the fundamental value of "refrigerating" has been commoditized. Second, price premiums are found for products that have been innovated in response to environmental standards to be chlorofluorocarbon (CFC)-free and use energy more efficiently. Third, the price premiums for these attributes show specific trends during this period. A CFC-free product initially received a high price premium; however, the premium decreased and became 0. On the other hand, although an energy-consumption-efficient product did not receive a high price premium initially, the price premium increased every time manufacturers faced new or revised environmental standards. These findings prove that product innovation in response to environmental standards can create a competitive advantage where product commoditization has occurred, and that the trends in the price premiums for environmentally friendly attributes are not unique for CFC-free and energy-consumption-efficient products.