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On Ethical Product Differentiation with Asymmetric Distance Costs

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Listed:
  • Leonardo Becchetti
  • Luisa Giallonardo
  • Maria Elisabetta Tessitore

Abstract

In our model of ethical product differentiation two duopolists, a profit maximizing producer (PMP) and a "socially responsible" (SR) producer, compete over prices and "socially and environmentally responsible" features of their products. We show that the PMP finds it optimal to reduce his price after the SR producer’s entry when his location is fixed.We also outline equilibria in a sequential game in which the SR producer is a Stackelberg leader. We show that, when consumers’ perceived costs of ethical distance are high enough, equilibria have three main features: minimum price differentiation, ethical imitation and non minimal ethical differentiation.

Suggested Citation

  • Leonardo Becchetti & Luisa Giallonardo & Maria Elisabetta Tessitore, 2007. "On Ethical Product Differentiation with Asymmetric Distance Costs," Rivista di Politica Economica, SIPI Spa, vol. 97(5), pages 55-82, September.
    • Handle: RePEc:rpo:ripoec:v:97:y:2007:i:5:p:55-82
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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