Nota di Lavoro, Fondazione Eni Enrico Mattei 138.2006
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 industrys average environmental quality below what it would be without the standard.
Duopoly Environmental Quality Mandatory Environmental Standard Overcompliance Product Differentiation