Hedonic Quality and Social Norms: A Hybrid Model of Product Differentiation

Abstract

We analyse how strategic competition between a green …rm and a brown competitor develops when their products are di¤erentiated 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 satis…es the consumers' desire to be socially worthy citizens. Product variants thus comply at di¤erent levels with "green" social norms. Consumer preferences depend on a combination of hedonic quality and compliance with social norms. Assuming that the high hedonic quality variant complies less with these norms than the low hedonic quality variant, we characterize di¤erent equilibrium con…gurations which appear as a result of both the intensity of such norms and the willingness to pay for the hedonic quality. Afterwards, we discuss the policy implications of our analysis. Keywords: Hedonic quality, environmental quality, relative preferences.JEL Classi…cation: D62; L13; H13.This working paper is the revised and updated version of the Working Paper DSE N 950. In this new version, we point out the economic e¤ects of strategic competition when products are di¤erentiated along two dimensions that give rise to a hybrid model of product di¤erentiation. We are grateful to

Market configurations when marginal costs are quality‐dependent

“…We should acknowledge that there are some other works that have considered the possibility of different market structures in different setups which, however, are not directly related with our work. For instance, Mantovani et al (2015) consider a model with two quality dimensions, hedonic quality and environmental quality, which are in conflict with each other. They derive the equilibrium configurations in the price game but do not endogenize quality choices.…”