Experience Stern | Faculty & Research

Overview: In the paper titled, “Sustainability and Competition on Amazon,” NYU Stern Professor Xiao Liu, along with co-authors Xiaohang (Flora) Feng (Carnegie Mellon University), Shunyuan Zhang (Harvard University), and Kannan Srinivasan (Carnegie Mellon University), explores the effects of Amazon’s Climate Pledge Friendly (CPF) badge on consumer behavior, seller pricing, and market concentration.

Why study this now: Sustainable products are a growing market, with sales projected to rise over 19.5% from 2023 to 2032. Sustainability is increasingly critical for businesses, with 90% of leaders prioritizing it and 60% having strategies in place. Marketplaces like Amazon have adopted eco-labels like the CPF badge, representing 52 sustainability certifications to help consumers identify eco-friendly products.

Green badges, like CPF, influence product sales and pricing in complex ways. While they attract eco-conscious buyers, they might deter others if products are perceived as overpriced or less functional. The badges can lead to higher prices if customers value sustainability but may reduce prices if there is a mismatch between what people say they’ll pay and their actual spending.

What the authors found: Studying 6,606 products and using advanced machine learning to analyze text and image features, the researchers confirmed that CPF badges boost demand and prices while reducing market concentration, creating a “triple-benefit” scenario:

• Demand: Products with the CPF badge see higher demand, especially among older adults and men.
• Pricing: Green badges often justify price increases, as buyers are willing to pay premiums for sustainable goods.
• Market Competition: The badges benefit smaller brands, reducing market concentration and fostering competition, although large brands may also maintain dominance.

What does this change: This study shows that unified green badges enhance consumer interest, especially in specific demographics, while promoting sustainable marketing strategies. It offers a framework for other platforms to adopt eco-labeling effectively, benefiting both consumers and smaller brands.

Key insight: “Our research represents a pioneering endeavor, delving into the profound implications of a unified eco-label on pricing and demand dynamics in ecommerce,” note the researchers. “In addition to examining the impact on pricing and demand, we extend our investigation to uncover the influence of eco-labeling on ratings and reviews in the realm of online shopping, thus providing novel insights into this relatively unexplored territory.”

This paper is under review at Marketing Science.