Abatement choices as a marketing strategy in a duopoly

The presentation describe an essay that departs from Buccella et al. (2021) and considers a quantity-setting duopoly (Cournot rivalry) in which firms adopt an abatement technology as a device to improve the quality of products. Consumer preferences capture vertical product differentiation (quality) in the sense that a good produced with "green" technology allows the consumer to get a higher utility than a good produced with dirty technology. This introduces a trade-off on the production side, as firms that do not abate, in turn, do not sustain any abatement cost but the demand for their product is low. On the contrary, firms that choose to abate incur abatement costs, but the demand for their product is high. This article aims to study and understand whether this kind of consumers preferences may lead firms to choose to invest in green technology and introduces a new, private-based (that contrasts the well-known public-based) mechanism through which pollution abatement can emerge as a sub-game perfect Nash equilibrium (SPNE) of a non-cooperative abatement decision game (ADG) with product quality and complete information. The model is developed in a parsimonious way to pinpoint the role of consumers' preferences weighting product quality and the fixed cost of abatement in determining the endogenous market outcome that ranges from an anti-prisoner's dilemma in which self-interest and mutual benefit of using a standard dirty technology do not conflict to an anti-prisoner's dilemma in which self-interest and mutual benefit of using a green technology do not conflict, passing through to an anti-coordination scenario that explains the coexistence of abating and non-abating firms. The article also studies the social welfare outcomes corresponding to the SPNE and reveals the existence of a parametric area in which there is a win-win solution from a societal perspective. The article also shows a rich spectrum of SPNE outcomes emerging in a Bertrand duopoly.