Greenwashing Risks in Environmental Quality Competition: Detection and Deterrence
The rising prevalence of greenwashing by firms has emerged as a major concern for regulatory authorities over the past decade. This paper examines the impact of regulation on firms’ strategic decisions regarding greenwashing and environmental quality in an oligopolistic market. We model two firms th...
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MDPI AG
2025-03-01
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| author | Arka Mukherjee Subhadip Ghosh |
| author_facet | Arka Mukherjee Subhadip Ghosh |
| author_sort | Arka Mukherjee |
| collection | DOAJ |
| description | The rising prevalence of greenwashing by firms has emerged as a major concern for regulatory authorities over the past decade. This paper examines the impact of regulation on firms’ strategic decisions regarding greenwashing and environmental quality in an oligopolistic market. We model two firms that compete on environmental quality and greenwashing levels, operating under the oversight of a regulatory authority. The authority’s policy instruments include a detection mechanism and fines imposed on firms engaging in greenwashing. Using a differential game-theoretical framework, we examine the effectiveness of regulatory interventions like detection and penalties in reducing greenwashing behavior and enhancing environmental quality. Additionally, we discuss the post-detection trajectories of both firms, providing insights into the effects on consumer perceptions and market competition. We find that while regulation can reduce greenwashing as expected, it may also reduce firms’ environmental quality efforts. Indeed, when penalties are sufficiently high, the marginal returns on investment in greenwashing exceed those from actual green quality improvements. |
| format | Article |
| id | doaj-art-488cc9986f564873b2552eb8cd841a3a |
| institution | DOAJ |
| issn | 2073-4336 |
| language | English |
| publishDate | 2025-03-01 |
| publisher | MDPI AG |
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| series | Games |
| spelling | doaj-art-488cc9986f564873b2552eb8cd841a3a2025-08-20T03:13:47ZengMDPI AGGames2073-43362025-03-011621410.3390/g16020014Greenwashing Risks in Environmental Quality Competition: Detection and DeterrenceArka Mukherjee0Subhadip Ghosh1Department of Decision Sciences, School of Business, MacEwan University, Edmonton, AB T5J 4S2, CanadaDepartment of Decision Sciences, School of Business, MacEwan University, Edmonton, AB T5J 4S2, CanadaThe rising prevalence of greenwashing by firms has emerged as a major concern for regulatory authorities over the past decade. This paper examines the impact of regulation on firms’ strategic decisions regarding greenwashing and environmental quality in an oligopolistic market. We model two firms that compete on environmental quality and greenwashing levels, operating under the oversight of a regulatory authority. The authority’s policy instruments include a detection mechanism and fines imposed on firms engaging in greenwashing. Using a differential game-theoretical framework, we examine the effectiveness of regulatory interventions like detection and penalties in reducing greenwashing behavior and enhancing environmental quality. Additionally, we discuss the post-detection trajectories of both firms, providing insights into the effects on consumer perceptions and market competition. We find that while regulation can reduce greenwashing as expected, it may also reduce firms’ environmental quality efforts. Indeed, when penalties are sufficiently high, the marginal returns on investment in greenwashing exceed those from actual green quality improvements.https://www.mdpi.com/2073-4336/16/2/14differential gamegreenwashingdetectionenvironmental qualityregulation |
| spellingShingle | Arka Mukherjee Subhadip Ghosh Greenwashing Risks in Environmental Quality Competition: Detection and Deterrence Games differential game greenwashing detection environmental quality regulation |
| title | Greenwashing Risks in Environmental Quality Competition: Detection and Deterrence |
| title_full | Greenwashing Risks in Environmental Quality Competition: Detection and Deterrence |
| title_fullStr | Greenwashing Risks in Environmental Quality Competition: Detection and Deterrence |
| title_full_unstemmed | Greenwashing Risks in Environmental Quality Competition: Detection and Deterrence |
| title_short | Greenwashing Risks in Environmental Quality Competition: Detection and Deterrence |
| title_sort | greenwashing risks in environmental quality competition detection and deterrence |
| topic | differential game greenwashing detection environmental quality regulation |
| url | https://www.mdpi.com/2073-4336/16/2/14 |
| work_keys_str_mv | AT arkamukherjee greenwashingrisksinenvironmentalqualitycompetitiondetectionanddeterrence AT subhadipghosh greenwashingrisksinenvironmentalqualitycompetitiondetectionanddeterrence |