Working paper

Environmental policies with green network effect and price discrimination

Nadia Burani, and Andrea Mantovani


We consider a duopolistic market in which a green firm competes with a brown rival, and both firms offer vertically differentiated products. Consumers are heterogeneous in both their willingness to pay for intrinsic quality and environmental concern. The latter is positively related to the green firm's market share, giving rise to a green network e¤ect. We characterize how price and quality schedules are set and how consumers sort between the two firms at the market equilibrium. When considering pollution both from consumption and production, we compute total welfare and evaluate the impact of an emission tax and a subsidy for the consumption of the green good. Our analysis demonstrates that efficiency can be achieved through an emission tax, which restores the optimal differential between firms' intrinsic qualities, combined with a discriminatory subsidy, which restores the optimal sorting of consumers.


bidimensional product differentiation; environmental concern; green network effect; pollution emissions; price discrimination; subsidy;

JEL codes

  • D21: Firm Behavior: Theory
  • L13: Oligopoly and Other Imperfect Markets
  • H21: Efficiency • Optimal Taxation
  • Q58: Government Policy
  • Q51: Valuation of Environmental Effects


Nadia Burani, and Andrea Mantovani, Environmental policies with green network effect and price discrimination, TSE Working Paper, n. 24-1513, February 2024.

See also

Published in

TSE Working Paper, n. 24-1513, February 2024