Competition among Coalitions in a Cournot Industry: A Validation of the Porter Hypothesis

We determine the emergence of the Porter Hypothesis in a large oligopoly setting where the industry-wide adoption of green technologies is endogenously determined as a result of competition among coalitions. We examine a setting where the initial technology is polluting, firms decide whether to be brown or green and compete in quantities. We find that the Porter hypothesis may emerge as a market configuration with all green firms spurred by environmental regulation, even if consumers are not environmentally concerned. Finally, we single out the necessary and sufficient conditions under which the green grand coalition is socially optimal and therefore yields a win-win outcome.