Price competition, short-termism and environmental performance

• The intensity of price competition increases short-termism of companies.
• Short-termism decreases environmental performance.
• The net effect of price competition on environmental performance is small.

This paper studies the relationships between the intensity of price competition, time horizon and environmental performance. We hypothesize that more intense price competition discourages environmental performance by inducing short-termism in companies. We test the hypotheses on a sample of 3152 companies from twelve European countries. Using structural equation modeling, test results show that price competition significantly shortens the time horizon that companies apply in strategic decisions and that (long) time horizon significantly increases their environmental performance. However, the net negative effect of the intensity of price competition on environmental performance is small in absolute terms. The policy implication is that there is no serious dilemma between fostering environmental performance on one hand and increasing consumer surplus by encouraging price competition on the other hand.