Strategic quality competition and the Porter Hypothesis

Abstract

In this paper we provide a theoretical foundation for the Porter hypothesis in a context of quality competition. We use a duopoly model of vertical product differentiation where firms simultaneously choose the environmental quality of the good they produce (which can be either high or low) and, afterwards, engage in price competition. In this simple setting, we show that a Nash equilibrium of the game with low quality could be Pareto dominated by another strategy profile in which both firms produce the high environmental quality good.We then show how, in this case, the introduction of a penalty to any firm that produces the low environmental quality can result in an increase in both firms' profits. The impact of the policy on consumers depends on the effect of a quality shift on the cost structure of firms.JEL classification: L13, L51, Q55, Q58.

Sustainable value assessment of farms using frontier efficiency benchmarks

“…Galdeano-Gó mez et al, 2008), strategic quality competition (e.g. André et al, 2009), etc. In the context of this paper, the focus will lie on the integrated assessment of environmental and economic performance, although we recognize the important interlinkage with (firm) strategy.…”

Green Consumption and Relative Preferences in a Vertically Differentiated International Oligopoly

“…environment belongs to a set of values arising after essential needs have been satis…ed.market. 5 Accordingly, under the assumption of country-speci…c relative preferences, we characterize the equilibrium con…guration of the oligopoly. In particular, we …rst describe the role of relative preferences by comparing this equilibrium with a baseline where relative preferences are absent.…”

Competition Among Coalitions in a Cournot Industry: A Validation of the Porter Hypothesis

“…The strong version of the PH says instead that one of the consequences of environmental policy is indeed that of increasing …rms'pro…t perspectives. 4 Obviously, the strong version has generated a debate which would not have stemmed out of the weak alternative formulation, the reason being that conventional wisdom has it that, in general, limiting …rms' freedom should ultimately compromise their performance (cf. Palmer et al, 1995).…”

“…See also Wagner (2003). 4 A third version of the PH is known as narrow, and claims that ‡exible policy instruments outperform command-and-control instruments as for the resulting innovative incentives perceived by …rms. For more on di¤erent formulations of the PH, see Ja¤e and Palmer (1997 higher product prices (which is a strategic e¤ect).…”