The article examines how government rules affect companies' efforts to reduce pollution and the structure of markets. If firms face strict inspections, they are more likely to follow pollution standards. In a market with one dominant company, looser rules and thorough inspections lead to better compliance. In a market with two main players, tough inspections can create barriers to new companies entering the market. However, these inspections also push firms to invest more in reducing pollution, which can increase competition. Companies invest more in pollution control if they are already cleaner, more efficient, or have fewer competitors. Tighter regulations might reduce the chance of new companies entering the market, which could lower overall social welfare. In some cases, having one dominant company might be better for society than having two main competitors.