Quality competition and environmental damage: is there a role for relative preferences?
We consider from a theoretical and empirical viewpoint how network preferences of consumers, which differ in their willingness to pay (WTP) for green goods, affect the equilibrium configuration of a vertically differentiated duopoly when a cleaner firm competes against a dirtier rival. We find that a trade-off can emerge between emissions abatement and the catching-up process of the dirtier firm can emerge. In particular, emissions decrease only when consumers with low WTP have network preferences.