Environmental Awards in a Duopoly with Green Consumers

Lisa Heidelmeier and Marco Sahm

No 11879, CESifo Working Paper Series from CESifo

Abstract: We investigate the impact of an environmental award in a Bertrand duopoly with green consumers considering a three-stage game. First, the regulator designs the environmental contest. Second, firms choose their green investments, and the winner of the contest is awarded. Third, firms compete in prices, and consumption takes place. We illustrate that the award not only incentivizes green investments and may thus reduce environmental externalities. As consumers perceive the product of the awarded firm to be of superior quality, it also gives rise to vertical product differentiation. This induces market power, and thus anti-competitive effects: Rents shift from consumers to producers, and consumer surplus may decrease, particularly if marginal investment costs in green technologies are high compared to the strength of environmental damage.

Keywords: Bertrand competition; contests; environmental award; green consumer; product differentiation (search for similar items in EconPapers)
JEL-codes: D43 H23 L13 L51 Q52 Q58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11879

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