We consider a two-stage game in a differentiated duopoly, where firms can pursue both a financial and an environmental objective. We assume that the maximum willingness-to-pay of consumers increases with the weights given by firms to their environmental objective. In the first stage of the game, the firms decide on the weight of their environmental objective and, in the second stage, firms compete à la Cournot. We show that accounting for environmental concerns in the firms' objective is generally profitable, and that lower pollution and higher profits can be attained in equilibrium when the impact of firms' environmental conscientiousness on consumers' willingness to pay is above a given threshold that depends on the products substitutability parameter. However, we find that the impact of firms' environmental awareness on consumers' welfare is ambiguous.
Published December 2020 , 15 pages