Environmental Policy and Firms Agglomeration under the Mixed Duopoly

In this paper, we analyze the mixed duopoly, in which the private firm maximizing profit competes with the public firm maximizing social welfare under the linear city. This model is not price competition like Hotelling (1929) but quantity competition like Anderson and Neven (1991) or Matsushima and Matsumura (2003), both firms face the quantity competition of homogeneous goods at each location in the city. Moreover, those firms emit any pollution in the manufacturing process similar to Naito and Ogawa (2009). The purpose of this paper compares the case without environmental regulation with the case regulated by government and analyzes the effect of environmental regulation on firms agglomeration. As the result of analysis, we show that the environmental regulation affects the location pattern of each firm in the city.