Competing eco-labels and product market competition

I examine the impact of competition between eco-labeling programs in a market where eco-labels that communicate information about product's environmental quality (a credence attribute) are also strategic variables for competing firms. Specifically, I consider a dynamic setting where an industry-sponsored eco-labeling program and a program sponsored by environmental NGOs compete strategically in setting the labeling standards, before price-setting firms make strategic choices of which eco-label (if any) to adopt; adopting firms not presently meeting the labeling standards undertake costly quality improvement to comply with them. I find that the competition between eco-labeling programs may lead to the same high environmental benefit as when there exists only the NGO program. I also find that the competition may yield higher social welfare. (C) 2020 Elsevier B.V. All rights reserved.