Abstract
We consider a model of vertical product differentiation where consumers care about the environmental damage their consumption causes. An environmental group is capable of increasing consumers’ environmental concern via a costly campaign. We show that the prospect of such a campaign can induce entry by a firm that is able to employ a cleaner technology than the one used by the incumbent. We further demonstrate that the subsequent competition can lead to an adverse effect on aggregate pollution, i.e. the decline in average industry pollution per product is offset by the increase in aggregate production.
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Acknowledgements
Van der Made acknowledges The Netherlands Organization for Scientific Research (NWO) for financial support. The authors wish to thank Marco Haan, Pim Heijnen, José Luis Moraga-González, Linda Toolsema-Veldman, and seminar participants at the PC2007, especially Hans-PeterWeikard, for useful suggestions. This paper greatly benefited from the comments of two anonymous referees.
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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van der Made, A., Schoonbeek, L. Entry Facilitation by Environmental Groups. Environ Resource Econ 43, 457–472 (2009). https://doi.org/10.1007/s10640-008-9239-3
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DOI: https://doi.org/10.1007/s10640-008-9239-3