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Green competition, hybrid equilibrium, and establishment of a resale market

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  • Caplan, Arthur J.
  • Oladi, Reza

Abstract

This paper investigates competition between firms whose choices of how much “green effort” to devote to building their reputations as socially responsible producers are determined in the contexts of simultaneous-move and hybrid simultaneous/sequential-move Bertrand equilibria. We derive conditions under which (1) the inter-temporal, green-effort reaction function of the firm with the less-aggressive green strategy is non-monotonic, (2) the level of green effort chosen by the firm with the more-aggressive green strategy increases when it views itself as the leader in a hybrid game rather than moving concurrently in a simultaneous-choice game, and (3) the establishment of a resale market by the more aggressive firm acts as a substitute for its choice of green-effort level. The sufficiency conditions underlying these results impose qualitative restrictions on the more-aggressive firm's lagged (i.e., reputational) and contemporaneous cross effects of its green effort on demand for the less-aggressive firm's product, as well as on the less-aggressive firm's price markup and marginal cost associated with its production and green-effort choices, respectively.

Suggested Citation

  • Caplan, Arthur J. & Oladi, Reza, 2018. "Green competition, hybrid equilibrium, and establishment of a resale market," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 259-269.
    • Handle: RePEc:eee:reveco:v:58:y:2018:i:c:p:259-269
    DOI: 10.1016/j.iref.2018.03.025
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    References listed on IDEAS

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    More about this item

    Keywords

    D21; L13; M14; Green effort; Bertrand equilibrium; Resale market;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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