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Abstract:Negative externalities have competitive relevance in a market when they have selective impacts – as, for
example, when a product in use imposes greater costs on consumers of rival products than on other people.
Because managers have discretion over aspects of product design that affect external costs, the externality in
such cases may be viewed as a strategic variable. This paper presents evidence of the existence of
competitively-relevant negative externalities. I introduce a metric for the externality’s competitive effect, the
external cost elasticity of demand, which I estimate econometrically using data from the motor vehicle
industry. Managerial implications are considered.
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[PDF-716.87 KB]
