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Vertical differentiation in a Cournot industry: The Porter hypothesis and beyond

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  • Lambertini, Luca
  • Tampieri, Alessandro

Abstract

We modify the vertically differentiated duopoly model by André et al. (2009) replacing Bertrand with Cournot behaviour, and we characterise the region wherein a Porter-type result takes place. We show that the Porter hypothesis applies in an equilibrium taking always the form of a prisoner's dilemma. Moreover, whenever the asymmetry in the cost parameters between green and brown technology is not too high, a class of equilibria emerges wherein firms converge spontaneously onto the green standard as a result of dominant strategies, any environmental regulation being altogether absent.

Suggested Citation

  • Lambertini, Luca & Tampieri, Alessandro, 2012. "Vertical differentiation in a Cournot industry: The Porter hypothesis and beyond," Resource and Energy Economics, Elsevier, vol. 34(3), pages 374-380.
  • Handle: RePEc:eee:resene:v:34:y:2012:i:3:p:374-380
    DOI: 10.1016/j.reseneeco.2012.03.001
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    References listed on IDEAS

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    1. Christos Constantatos & Markus Herrmann, 2011. "Market Inertia and the Introduction of Green Products: Can Strategic Effects Justify the Porter Hypothesis?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(2), pages 267-284, October.
    2. Xepapadeas, Anastasios & de Zeeuw, Aart, 1999. "Environmental Policy and Competitiveness: The Porter Hypothesis and the Composition of Capital," Journal of Environmental Economics and Management, Elsevier, vol. 37(2), pages 165-182, March.
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    4. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    5. 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.
    6. Andr, Francisco J. & Gonzlez, Paula & Porteiro, Nicols, 2009. "Strategic quality competition and the Porter Hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 57(2), pages 182-194, March.
    7. Levitan, Richard & Shubik, Martin, 1972. "Price Duopoly and Capacity Constraints," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 111-122, February.
    8. Osborne, Martin J. & Pitchik, Carolyn, 1986. "Price competition in a capacity-constrained duopoly," Journal of Economic Theory, Elsevier, vol. 38(2), pages 238-260, April.
    9. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    10. Michael E. Porter & Claas van der Linde, 1995. "Toward a New Conception of the Environment-Competitiveness Relationship," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 97-118, Fall.
    11. Simpson, R. David & Bradford, Robert III, 1996. "Taxing Variable Cost: Environmental Regulation as Industrial Policy," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 282-300, May.
    12. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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    Cited by:

    1. Luca Lambertini & Andrea Mantovani & Cecilia Vergari, 0. "Green monopoly and downward leapfrogging," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 0, pages 1-11.
    2. André, Francisco J., 2015. "Strategic Effects and the Porter Hypothesis," MPRA Paper 62237, University Library of Munich, Germany.
    3. Teemu Makkonen & Sari Repka, 2016. "The innovation inducement impact of environmental regulations on maritime transport: a literature review," International Journal of Innovation and Sustainable Development, Inderscience Enterprises Ltd, vol. 10(1), pages 69-86.
    4. Lambertini, Luca & Orsini, Raimondello & Palestini, Arsen, 2017. "On the instability of the R&D portfolio in a dynamic monopoly. Or, one cannot get two eggs in one basket," International Journal of Production Economics, Elsevier, vol. 193(C), pages 703-712.
    5. Amir, Rabah & Gama, Adriana & Maret, Isabelle, 2019. "Environmental quality and monopoly pricing," Resource and Energy Economics, Elsevier, vol. 58(C).
    6. Pang, Yu, 2018. "Profitable pollution abatement? A worker productivity perspective," Resource and Energy Economics, Elsevier, vol. 52(C), pages 33-49.
    7. L. Lambertini & G. Piagnataro & A. Tampieri, 2015. "Competition among Coalitions in a Cournot Industry: A Validation of the Porter Hypothesis," Working Papers wp989, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. L. Lambertini & A. Tampieri, 2012. "On the Emergence of Overcompliance with Endogenous Environmental Standards and Patronising Consumers," Working Papers wp847, Dipartimento Scienze Economiche, Universita' di Bologna.
    9. L. Lambertini & G. Pignataro & A. Tampieri, 2014. "Green Consumers, Greenwashing and the Misperception of Environmental Quality," Working Papers wp958, Dipartimento Scienze Economiche, Universita' di Bologna.
    10. Lambertini, Luca & Pignataro, Giuseppe & Tampieri, Alessandro, 2020. "The effects of environmental quality misperception on investments and regulation," International Journal of Production Economics, Elsevier, vol. 225(C).
    11. Ana Espinola-Arredondo & Felix Munoz-Garcia, 2012. "An Excessive Development of Green Products," Working Papers 2012-5, School of Economic Sciences, Washington State University.
    12. Iwata, Hiroki, 2020. "Effects of competition forms and market structure on green innovation incentives," MPRA Paper 99305, University Library of Munich, Germany.

    More about this item

    Keywords

    Environmental quality; Quantity competition; Green technology; Porter hypothesis;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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