Competition among Coalitions in a Cournot Industry: A Validation of the Porter Hypothesis

We determine the emergence of the Porter hypothesis in a large oligopoly setting where the industry-wide adoption of green technologies is endogenously determined as a result of competition among coalitions. We examine a framework where firms decide whether to be “brown” or “green” and compete in quantities. We find that the Porter hypothesis may emerge as a market configuration with all green firms spurred by environmental regulation, even if consumers are not environmentally concerned. We also single out the necessary and sufficient conditions under which the green grand coalition is socially optimal and therefore yields a win–win outcome. Then, we show that, if the environmental externality is steep enough, the tax rate maximising welfare in the initial industry configuration is a driver of the win–win solution. Finally, the analysis is extended in several directions.