Green consumption and relative preferences in an international oligopoly

We consider an open to trade North-South two-country model with two vertically differentiated goods and relative preferences in consumption. Differentiation is along an environmental quality dimension. Analyzing the equilibrium configuration, we find that the green firm obtains higher profits under relative preferences than in their absence, whereas a brown firm is penalized by them if trade is sufficiently liberalized. Moreover, under relative preferences in both countries, trade liberalization is beneficial for the green producer but detrimental for the brown rival. Importantly, this finding does not hold when these preferences are only present in the developing country where the brown good is produced. In this case, the process of trade liberali- zation can be environmentally detrimental since it can favor the brown firm in terms of profits, while penalizing the green rival.