Corporate Environmental Footprint and Product Market Competition

Product market competition has been long considered an important driver of sustainability, motivating firms to cater to environmentally-conscious consumers. However, in the most polluting industries consumers cannot differentiate across products, rendering consumer channel ineffective. Can competition still improve environmental footprint of corporations absent consumer differentiation? We show that cost-cutting measures available to the firm are the key determinant of whether competition will reduce environmental impact. Only when cost-cutting measures have a positive impact on the environment the overall effect of competition is positive.