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Environmental Quality in a Differentiated Duopoly

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  • Y. Hossein Farzin

    (University of California)

  • Ken-Ichi Akao

    (Waseda University)

Abstract

In a duopoly industry with environmentally differentiated products, we examine the effects of introducing a mandatory environmental quality standard on firms’ environmental quality choices, profits, and the average environmental quality offered by the industry. We show that at low standard levels, both firms choose to overcomply regardless of the standard level. At intermediate levels, the mandatory standard can reduce the profit of the low-cost firm while increasing that of the high-cost firm, and that it can lower the industry’s average environmental quality below what it would be without the standard.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.138.

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Date of creation: Nov 2006
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Handle: RePEc:fem:femwpa:2006.138

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Related research

Keywords: Duopoly; Environmental Quality; Mandatory Environmental Standard; Overcompliance; Product Differentiation;

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References

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  1. Anton, Wilma Rose Q. & Deltas, George & Khanna, Madhu, 2002. "Incentives for Environmental Self-Regulation and Implications for Environmental Performance," Working Papers 02-0120, University of Illinois at Urbana-Champaign, College of Business.
  2. J Videras & A Alberini, 2000. "The appeal of voluntary environmental programs: which firms participate and why?," Contemporary Economic Policy, Western Economic Association International, vol. 18(4), pages 449-460, October.
  3. Farzin, Y H, 2003. "The Effects of Emissions Standards on Industry," Journal of Regulatory Economics, Springer, Springer, vol. 24(3), pages 315-27, November.
  4. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
  5. Maloney, Michael T & McCormick, Robert E, 1982. "A Positive Theory of Environmental Quality Regulation," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 25(1), pages 99-123, April.
  6. Lutz, Stefan & Lyon, Thomas P & Maxwell, John W, 2000. "Quality Leadership When Regulatory Standards Are Forthcoming," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 48(3), pages 331-48, September.
  7. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  8. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, American Economic Association, vol. 73(2), pages 267-71, May.
  9. Geoffrey Heal, 2005. "Corporate Social Responsibility: An Economic and Financial Framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 30(3), pages 387-409, July.
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Cited by:
  1. Rinaldo Brau & Carlo Carraro, 2011. "The design of voluntary agreements in oligopolistic markets," Journal of Regulatory Economics, Springer, Springer, vol. 39(2), pages 111-142, April.

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