In the spirit of Arrow (The Rate and Direction of Inventive Activity, Princeton, NJ, Princeton University Press, 1962), we examine, in an oligopoly model with horizontally differentiated products, how much a firm is willing to pay for a process innovation that it would be the only one to use. We show that different measures of competition (number of firms, degree of product differentiation, Cournot vs. Bertrand) affect incentives to innovate in non-monotonic, different and potentially opposite ways.

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tIn this paper, we analyze how strategic competition between a green firm and a browncompetitor develops when their products are differentiated along two dimensions: hedonicquality and environmental quality. The former dimension refers to the pure (intrinsic) per-formance of the good, whereas the latter dimension has a positional content: buying greengoods satisfies the consumer’s desire to be portrayed as a socially worthy citizen. We con-sider the case in which these quality dimensions are in conflict with each other so that thehigher the hedonic quality of a good, the lower the corresponding environmental quality.We characterize the equilibrium configurations and discuss the policy implications deriving from ou model

ABSTRACT. In this paper we compare two policy instruments that can be adopted to curb carbon emissions. The first is a conventional pollution tax, the second is an environmental campaign raising consumers' awareness about the relative impact of their consumption choices. The comparison is carried out in two different scenarios, depending on whether consumers' aprioristic preferences are such that they value the environmental attribute of a product (environmental quality) or its pure performance (hedonic quality) . In the case of environmental quality, the campaign is preferred under some specific conditions based on consumer heterogeneity, cost-effective analysis, and pollution level. On the contrary, the pollution tax is always preferred in the case of hedonic quality. Therefore, we show that the relative efficiency of the two policy instruments crucially depends on consumers' initial concern for the environment, which may vary across countries due to socio-economic conditions.

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We consider amodel for licensing a non-drastic innovation in which the patent holder (an outside innovator) negotiates either up-front fixed fees or perunit royalties with two firms producing horizontally differentiated brands and competing `a la Cournot. We investigate how licensing schemes (fixed fee or per-unit royalty) and the number of licenses sold (exclusive licensing or complete technology diffusion) affect price agreements and delays in reaching an agreement.We show that, under complete information, the patent holder prefers to license by means of upfront fixed fees whatever the degree of product differentiation, the innovation size and the level of bargaining power. Once there is private information about the relative bargaining power of the parties, the patent holder may prefer licensing by means of per-unit royalties even if market competition is strong. Moreover, the delay in reaching an agreement is greater whenever the patent holder chooses to negotiate up-front fixed... JEL classi…cation: C78; D21; D43; D45; L13.CEREC, Saint-Louis University -Brussels; CORE, University of Louvain, Louvain-la-Neuve, Belgium. y CORE, University of Louvain, Louvain-la-Neuve; CEREC, Saint-Louis University -Brussels,Belgium. E-mail: vincent.vannetelbosch@uclouvain.be z Department of Economic Sciences, University of Bologna, Bologna, Italy.We thank an anonymous referee for useful comments. We also thank Paul Belle ‡amme, GianpaoloRossini and seminar audience at

Inspired by the so-called polluter pays principle, environmental taxes can drive a more sustainable European market. However, unilateral mitigation measures can reduce the competitiveness of carbon-intensive industries, thereby inducing relocation. In this paper, we wonder whether a tax can effectively curb emissions without hurting firms. Our analysis's entry point is that the level of emissions in a region is jointly determined by (i) the number of consumers buying dirty goods and (ii) the environmental quality of these products. Thus, to curb emissions, on the one hand, firms have to reduce their goods' emissions intensity. On the other hand, consumers have to reduce the consumption of dirtier goods. This leads to defining a tax depending on the number of consumers buying the brown products and the relative quality of these products. We show that under this tax, lower emissions do not come at the expense of lower profits.