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Competition and Sustainability: The Impact of Consumer Awareness

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ABSTRACT

Sustainability, a broad concept that includes numerous environmental and social dimensions, has emerged as an important product evaluation criterion for consumers. We suggest the impact of sustainability on consumer behavior depends on two factors—each individual consumer's unique level of concern about sustainability, and the general level of awareness regarding the sustainability of competing products—that together determine the level of heterogeneity among consumer attitudes toward sustainability. We incorporate sustainability concern and awareness into a model of horizontal competition in a duopoly, where one firm's product is more sustainable than the other's. Our results suggest that marginal increases in awareness can benefit all firms, including the less sustainable one, when awareness is sufficiently high (the explicit goal of recent sustainability labeling initiatives). In several model extensions, we provide additional insights for the following cases: the sustainable firm controls the extent of its sustainability advantage, the sustainable firm can directly influence the general level of awareness, and the distribution of sustainability concern across consumers is nonuniform. Our results enable us to suggest several new insights for managers, both those whose products enjoy a sustainability advantage and those whose products do not.

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