Green monopoly and downward leapfrogging

In this paper we show that environmental consciousness may act as a substitute for environmental regulation. We consider a vertically differentiated duopoly in which the high quality firm pollutes more than the low quality rival. Consumers attach a positive value to the green firm, while stigmatizing the brown one. For relatively high values of this environmental concern, only the green firm is active in the market. When this happens, a downward leapfrogging mechanism takes place, leading to a recursive race to the bottom. At equilibrium, polluting emissions can be reduced to the level established by environmental agencies.