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Environmental Quality in a Differentiated Duopoly

Author

Listed:
  • 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.

Suggested Citation

  • Y. Hossein Farzin & Ken-Ichi Akao, 2006. "Environmental Quality in a Differentiated Duopoly," Working Papers 2006.138, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2006.138
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    References listed on IDEAS

    as
    1. Stefan Lutz & Thomas P. Lyon & John W. Maxwell, 2000. "Quality Leadership when Regulatory Standards are Forthcoming," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 331-348, September.
    2. repec:adr:anecst:y:2004:i:75-76:p:11 is not listed on IDEAS
    3. Geoffrey Heal, 2005. "Corporate Social Responsibility: An Economic and Financial Framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 30(3), pages 387-409, July.
    4. Y. H. Farzin, 2004. "Can Stricter Environmental Standards Benefit the Industry and Enhance Welfare," Annals of Economics and Statistics, GENES, issue 75-76, pages 223-255.
    5. Anton, W.R.Q.Wilma Rose Q. & Deltas, George & Khanna, Madhu, 2004. "Incentives for environmental self-regulation and implications for environmental performance," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 632-654, July.
    6. Maloney, Michael T & McCormick, Robert E, 1982. "A Positive Theory of Environmental Quality Regulation," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 99-123, April.
    7. Farzin, Y H, 2003. "The Effects of Emissions Standards on Industry," Journal of Regulatory Economics, Springer, vol. 24(3), pages 315-327, November.
    8. 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.
    9. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-271, May.
    10. 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.
    11. 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, vol. 27(1), pages 107-122, February.
    12. Lutz, Stefan & Lyon, Thomas P & Maxwell, John W, 2000. "Quality Leadership When Regulatory Standards Are Forthcoming," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 331-348, September.
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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, vol. 39(2), pages 111-142, April.
    2. Mireille Chiroleu-Assouline, 2010. "Green Leader or Green Liar? Differentiation and the role of NGOs," Documents de travail du Centre d'Economie de la Sorbonne 10097, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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    More about this item

    Keywords

    Duopoly; Environmental Quality; Mandatory Environmental Standard; Overcompliance; Product Differentiation;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • 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
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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