| dc.description.abstract | Environmental pollution is a common byproduct in the production of final goods. This study establishes a theoretical Cournot quantity competition model under a duopoly market structure to examine the impact of “environment– social – governance (ESG) “ —specifically when firms consider the environmental harm caused by their production, the output and profits of final goods firms and their upstream intermediate goods suppliers, as well as on the prices in both markets.
The findings reveal that in a duopoly market, when one final goods firm adopts ESG principles and begins to address environmental concerns, it voluntarily reduces its output, leading to a decline in its profits. Conversely, its competitor increases output and sees an increase in profits. As a result, the total output of final goods decreases. The reduction in output by the environmentally conscious firm also lowers its demand for intermediate goods, prompting upstream firms to reduce their production and experience a decrease in profits. The intermediate goods market price falls due to the contraction of market size.
In another model, assuming that both final goods firms share a similar level of concern for environmental harm under a common industry culture, the results vary depending on the level of concern. If the firms’ environmental concern is low and the per-unit environmental damage is minimal, both firms reduce output, resulting in a collusive effect that drives market prices higher and increases profits for both firms. Under such conditions, profits surpass those of the traditional profit-maximization model. However, as per-unit environmental damage increases, profits first rise and then fall, which may be greater or less than traditional profits, depending on the extent of the damage. When environmental damage is severe, increased environmental concern leads to profit declines below traditional levels.
This study explores the impact of ESG adoption by final goods firms on the output and profits of upstream and downstream firms and identifies conditions under which collusive effects arise, as well as when profits increase or decrease. The findings aim to provide a comprehensive perspective on how ESG considerations influence corporate profitability. | en_US |