IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_11879.html
   My bibliography  Save this paper

Environmental Awards in a Duopoly with Green Consumers

Author

Listed:
  • Lisa Heidelmeier
  • Marco Sahm

Abstract

We investigate the impact of an environmental award in a Bertrand duopoly with green consumers considering a three-stage game. First, the regulator designs the environmental contest. Second, firms choose their green investments, and the winner of the contest is awarded. Third, firms compete in prices, and consumption takes place. We illustrate that the award not only incentivizes green investments and may thus reduce environmental externalities. As consumers perceive the product of the awarded firm to be of superior quality, it also gives rise to vertical product differentiation. This induces market power, and thus anti-competitive effects: Rents shift from consumers to producers, and consumer surplus may decrease, particularly if marginal investment costs in green technologies are high compared to the strength of environmental damage.

Suggested Citation

  • Lisa Heidelmeier & Marco Sahm, 2025. "Environmental Awards in a Duopoly with Green Consumers," CESifo Working Paper Series 11879, CESifo.
    • Handle: RePEc:ces:ceswps:_11879
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/cesifo1_wp11879.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Giebe, Thomas & Schweinzer, Paul, 2014. "Consuming your way to efficiency: Public goods provision through non-distortionary tax lotteries," European Journal of Political Economy, Elsevier, vol. 36(C), pages 1-12.
    2. MacKenzie, Ian A. & Hanley, Nick & Kornienko, Tatiana, 2009. "Using contests to allocate pollution rights," Energy Policy, Elsevier, vol. 37(7), pages 2798-2806, July.
    3. Jaskold Gabszewicz, J. & Thisse, J. -F., 1980. "Entry (and exit) in a differentiated industry," Journal of Economic Theory, Elsevier, vol. 22(2), pages 327-338, April.
    4. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, Decembrie.
    5. John Morgan, 2000. "Financing Public Goods by Means of Lotteries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 761-784.
    6. Ewerhart, Christian, 2017. "Revenue ranking of optimally biased contests: The case of two players," Economics Letters, Elsevier, vol. 157(C), pages 167-170.
    7. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    8. Martin Kolmar & Dana Sisak, 2014. "(In)efficient public-goods provision through contests," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 43(1), pages 239-259, June.
    9. Amacher, Gregory S. & Koskela, Erkki & Ollikainen, Markku, 2004. "Environmental quality competition and eco-labeling," Journal of Environmental Economics and Management, Elsevier, vol. 47(2), pages 284-306, March.
    10. Kai-Uwe Kuhn & Neslihan Uler, 2019. "Behavioral sources of the demand for carbon offsets: an experimental study," Experimental Economics, Springer;Economic Science Association, vol. 22(3), pages 676-704, September.
    11. Andreas Hefti & Shuo Liu, 2020. "Targeted information and limited attention," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 402-420, June.
    12. Ansink, Erik & Weikard, Hans-Peter, 2025. "Agreeing on public goods or bads," Journal of Environmental Economics and Management, Elsevier, vol. 130(C).
    13. Olivier Bos & Béatrice Roussillon & Paul Schweinzer, 2016. "Agreeing on Efficient Emissions Reduction," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(4), pages 785-815, October.
    14. , & ,, 2011. "On the strategic use of attention grabbers," Theoretical Economics, Econometric Society, vol. 6(1), January.
    15. Ward, David O. & Clark, Christopher D. & Jensen, Kimberly L. & Yen, Steven T., 2011. "Consumer willingness to pay for appliances produced by Green Power Partners," Energy Economics, Elsevier, vol. 33(6), pages 1095-1102.
    16. Carolyn Fischer & Thomas P. Lyon, 2019. "A Theory of Multitier Ecolabel Competition," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(3), pages 461-501.
    17. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    18. Anthony Heyes & Sandeep Kapur & Peter W. Kennedy & Steve Martin & John W. Maxwell, 2020. "But What Does It Mean? Competition between Products Carrying Alternative Green Labels When Consumers Are Active Acquirers of Information," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(2), pages 243-277.
    19. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
    20. Heyes, Anthony G., 1997. "Environmental Regulation by Private Contest," Journal of Public Economics, Elsevier, vol. 63(3), pages 407-428, February.
    21. Carroni, Elias & Mantovani, Andrea & Minniti, Antonio, 2023. "Price signaling with salient-thinking consumers," Games and Economic Behavior, Elsevier, vol. 138(C), pages 238-253.
    22. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    23. Li, Yunjian & Chen, Jiawen & Li, Li & Huang, Xiaojun, 2024. "Government innovation awards, innovation funds acquisition and enterprise innovation," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 846-864.
    24. Li, Yuanhao & van 't Veld, Klaas, 2015. "Green, greener, greenest: Eco-label gradation and competition," Journal of Environmental Economics and Management, Elsevier, vol. 72(C), pages 164-176.
    25. Lisette Ibanez & Gilles Grolleau, 2008. "Can Ecolabeling Schemes Preserve the Environment?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(2), pages 233-249, June.
    26. Dijkstra, Bouwe R., 2007. "An investment contest to influence environmental policy," Resource and Energy Economics, Elsevier, vol. 29(4), pages 300-324, November.
    27. Peitz, Martin, 1995. "Utility maximization in models of discrete choice," Economics Letters, Elsevier, vol. 49(1), pages 91-94, July.
    28. Klaas van 't Veld, 2020. "Eco-Labels: Modeling the Consumer Side," Annual Review of Resource Economics, Annual Reviews, vol. 12(1), pages 187-207, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Heidelmeier, Lisa & Sahm, Marco, 2023. "A Vertically Differentiated Duopoly Model with Environmental Awards," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277635, Verein für Socialpolitik / German Economic Association.
    2. Cole, Matthew T. & Doremus, Jacqueline M. & Hamilton, Stephen F., 2021. "Import restrictions by eco-certification: Quantity effects on tropical timber production," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    3. Haitao CHENG & Jota ISHIKAWA & Nori TARUI, 2025. "Green Consumption and Corporate Environmental Responsibility in North-South Trade," Discussion papers 25043, Research Institute of Economy, Trade and Industry (RIETI).
    4. Li, Yi, 2020. "Competing eco-labels and product market competition," Resource and Energy Economics, Elsevier, vol. 60(C).
    5. L. Colombo & L. Lambertini, 2003. "Dynamic Advertising Under Vertical Product Differentiation," Journal of Optimization Theory and Applications, Springer, vol. 119(2), pages 261-280, November.
    6. Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2018. "A dynamic model of quality competition with endogenous prices," Journal of Economic Dynamics and Control, Elsevier, vol. 94(C), pages 190-206.
    7. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2010. "Price and quality in spatial competition," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 471-480, November.
    8. Hend Ghazzai & R Lahmandi-Ayed, 2018. "Ecolabels: Is More Information Better?," Working Papers hal-01877934, HAL.
    9. Bae, Sang Hoo & Sarkis, Joseph & Yoo, Chung Sik, 2011. "Greening transportation fleets: Insights from a two-stage game theoretic model," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 793-807.
    10. Long, Ngo Van & Miao, Zhuang, 2019. "Vertically Differentiated Cournot Oligopoly : Effects of Market Expansion and Trade Liberalization on Relative Markup and Product Quality," Discussion paper series HIAS-E-91, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    11. Poret, Sylvaine, 2019. "Label wars: Competition among NGOs as sustainability standard setters," Journal of Economic Behavior & Organization, Elsevier, vol. 160(C), pages 1-18.
    12. L. Colombo & L. Lambertini, 2003. "Quality and Advertising in a Dynamic Duopoly," Working Papers 490, Dipartimento Scienze Economiche, Universita' di Bologna.
    13. De Fraja, Giovanni, 1996. "Product line competition in vertically differentiated markets," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 389-414, May.
    14. Keisuke Hattori & Keisaku Higashida, 2023. "Who should be regulated: Genuine producers or third parties?," Journal of Economics, Springer, vol. 138(3), pages 249-286, April.
    15. Jinji, Naoto & Toshimitsu, Tsuyoshi, 2013. "Strategic R&D policy in a quality-differentiated industry with three exporting countries," Japan and the World Economy, Elsevier, vol. 28(C), pages 132-142.
    16. Olivier Bonroy & Christos Constantatos, 2015. "On the Economics of Labels: How Their Introduction Affects the Functioning of Markets and the Welfare of All Participants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 239-259.
    17. Yurko, Anna V., 2011. "How does income inequality affect market outcomes in vertically differentiated markets?," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 493-503, July.
    18. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2019. "Vertical differentiation beyond the uniform distribution," Journal of Economics, Springer, vol. 126(3), pages 221-248, April.
    19. Nadar, Emre & Ertürk, Mine Su, 2021. "Eco-design of eco-labels with coarse grades," Omega, Elsevier, vol. 99(C).
    20. Olivier Bos & Béatrice Roussillon & Paul Schweinzer, 2016. "Agreeing on Efficient Emissions Reduction," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(4), pages 785-815, October.

    More about this item

    Keywords

    Bertrand competition; contests; environmental award; green consumer; product differentiation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • 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
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_11879. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.