Decisions of competing firms with emissions consideration

We consider the pricing problem between two competing firms who produce differentiated products under carbon tax policy and asymmetric information about carbon emissions intensity. We analyze the impact of carbon tax and information asymmetry on the firms' competitive decisions and obtain several interesting managerial insights. We find that the carbon tax has a more significant effect on the firm with a higher carbon emissions intensity. When faced with carbon tax, the firm with private information and its rival will both reduce their prices under high-carbon state and raise their prices under low-carbon state.