Producing Green or Brown? A Game of Green Innovation in an Asymmetric Oligopoly

Inês Carrilho-Nunes and Margarida Catalão-Lopes
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Inês Carrilho-Nunes: CEGIST, Instituto Superior Técnico, Universidade de Lisboa, Lisboa, Portugal
Margarida Catalão-Lopes: CEGIST, Instituto Superior Técnico, Universidade de Lisboa, Lisboa, Portugal
Authors registered in the RePEc Author Service: Margarida Catalão-Lopes

Journal of Environmental Assessment Policy and Management (JEAPM), 2024, vol. 26, issue 02, 1-18

Abstract: As consensus grows for low-carbon development, innovation becomes vital for green growth, given the substantial technology adoption needed for long-term environmental targets. This paper explores market-driven incentives for green product innovation in an asymmetric duopoly using a game theory approach without relying on direct government intervention. The roles that market dynamics and rivalry have on the supply of green or brown products are explored in simultaneous and sequential scenarios, considering technology costs, demand-creating effects, rivalry gains, and information availability. Results reveal that a fully green market is contingent on low innovation costs, depending especially on the magnitude of demand creation effects. Notably, product differentiation occurs only under extreme cost asymmetry. Recommendations underscore the importance of incentivising low-cost innovations, assessing the impact of product differentiation and diversity, especially concerning lower-income consumers, and proposing measures to improve the transparency of firms’ strategic choices.

Keywords: Green innovation; asymmetric costs; asymmetric impacts; information; oligopoly; game theory (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S1464333224500078

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