Environmental Standards and Firms' Competitiveness: A Theoretical Analysis

Falcone, Pasquale Marcello
February 2014
World Journal of Neuroscience;Feb2014, Vol. 4 Issue 1, p110
Academic Journal
This paper provides an additional reason why a win-win situation may emerge within the context of a qualitycompetition framework. We consider a duopoly model of vertical product differentiation, where single product firms decide whether to supply a high or low quality good (qi) as discrete variable, and then, compete in price à la Bertrand. In this simple setting, we found that the framework of this game can ensue in a typical prisoner's dilemma as a meaning that, in absence of an environmental policy, both firms choose the low environmental quality of the product although they might be better off shifting together toward the environmentally friendly product. Under this circumstance, an environmental policy (e.g. environmental standards) can improve the environmental quality while simultaneously enhancing firms' economic performance.


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