Endogenous Location Choice with R&D Spillovers : Impacts on Environmental Damage and Competition

We consider a model of horizontal product differentiation between two firms where locations are identified with eco-quality. The duopolists face spillover effects and locations are determined endogenously through R&D investments. We examine the resulting equilibrium locations when consumers differ in their attachment to ecofriendly products and environmental externalities are neglected. We also investigate appropriate policy instruments to counteract the resulting inefficiencies. Our model copes with latest trends and strategies observed in the automobile sector as in the case of “Dieselgate”