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Interfirm and Intrafirm Switching Costs in a Vertical Differentiation Setting: Green versus Nongreen Products

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  • Linda A. Toolsema

Abstract

In a vertical differentiation model where both duopolists supply the same two qualities of an otherwise homogeneous product, we derive the critical level of the interfirm switching cost needed to sustain monopoly pricing. In particular, we show how a decrease in the intrafirm switching cost may cause a decrease in this critical value, thereby facilitating monopoly pricing. We apply the results to a setting with green and nongreen products—in particular electricity—and discuss implications for policy measures intended to stimulate the production and consumption of green products.

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  • Linda A. Toolsema, 2009. "Interfirm and Intrafirm Switching Costs in a Vertical Differentiation Setting: Green versus Nongreen Products," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 263-284, March.
    • Handle: RePEc:bla:jemstr:v:18:y:2009:i:1:p:263-284
    DOI: 10.1111/j.1530-9134.2009.00214.x
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    2. Vasileiou, Efi & Georgantzís, Nikolaos, 2015. "An experiment on energy-saving competition with socially responsible consumers: Opening the black box," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 58(C), pages 1-10.
    3. Paolo G. Garella, 2021. "The effects of taxes and subsidies on environmental qualities in a differentiated duopoly," Letters in Spatial and Resource Sciences, Springer, vol. 14(2), pages 197-209, August.
    4. Wirl, Franz & Feichtinger, Gustav & Kort, Peter M., 2013. "Individual firm and market dynamics of CSR activities," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 169-182.
    5. Kudla, Nicole & Stölzle, Wolfgang, 2011. "Sustainability Supply Chain Management Research," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 65(3), pages 263-301.
    6. Michael Kopel, 2021. "CSR leadership, spillovers, and first-mover advantage," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 44(2), pages 489-505, December.
    7. Joshua S. Gans & Vivienne Groves, 2012. "Carbon Offset Provision with Guilt‐Ridden Consumers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 243-269, March.
    8. Mark Bagnoli & Susan G. Watts, 2020. "On the corporate use of green bonds," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 187-209, January.

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