Strategic use of recycled content standards under international duopoly

We examine the strategic use of recycled content standards (RCSs) under international duopoly. RCSs require firms supplying the domestic market to use a certain proportion of recycled materials as inputs. We demonstrate that, when there is no trade in recycled materials, two identical countries both set strategically stricter or laxer RCSs. However, when there is trade in recycled materials, it may be the case that one country sets a stricter RCS while the other sets a laxer RCS. When a world supply constraint on recycled materials is not binding, the main source of the asymmetric distortion in RCSs is a demand effect for recycled materials.