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Green competition, hybrid equilibrium, and establishment of a resale market

Arthur J. Caplan and Reza Oladi ()

International Review of Economics & Finance, 2018, vol. 58, issue C, 259-269

Abstract: This paper investigates competition between firms whose choices of how much “green effort” to devote to building their reputations as socially responsible producers are determined in the contexts of simultaneous-move and hybrid simultaneous/sequential-move Bertrand equilibria. We derive conditions under which (1) the inter-temporal, green-effort reaction function of the firm with the less-aggressive green strategy is non-monotonic, (2) the level of green effort chosen by the firm with the more-aggressive green strategy increases when it views itself as the leader in a hybrid game rather than moving concurrently in a simultaneous-choice game, and (3) the establishment of a resale market by the more aggressive firm acts as a substitute for its choice of green-effort level. The sufficiency conditions underlying these results impose qualitative restrictions on the more-aggressive firm's lagged (i.e., reputational) and contemporaneous cross effects of its green effort on demand for the less-aggressive firm's product, as well as on the less-aggressive firm's price markup and marginal cost associated with its production and green-effort choices, respectively.

Keywords: D21; L13; M14; Green effort; Bertrand equilibrium; Resale market (search for similar items in EconPapers)
Date: 2018
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