Hedonic and environmental quality: A hybrid model of product differentiation

•We analyze duopoly competition when products are differentiated along two dimensions.•The first is the hedonic quality that refers to the pure performance of the good.•The second is the environmental quality and it has a positional content.•We consider the case in which these quality dimensions are in conflict with each other.•We characterize the equilibrium configurations and discuss the policy implications.

In this paper, we analyze how strategic competition between a green firm and a brown competitor develops when their products are differentiated along two dimensions: hedonic quality and environmental quality. The former dimension refers to the pure (intrinsic) performance of the good, whereas the latter dimension has a positional content: buying green goods satisfies the consumer's desire to be portrayed as a socially worthy citizen. We consider the case in which these quality dimensions are in conflict with each other so that the higher the hedonic quality of a good, the lower the corresponding environmental quality. We characterize the equilibrium configurations and discuss the policy implications deriving from our analysis.