The zCOSMOS-bright 10k spectroscopic sample reveals a strong environmental dependence of close kinematic galaxy pair fractions in the redshift range 0.2 < z < 1. The fraction of close pairs is three times higher in the top density quartile than in the lowest one. This environmental variation in pair fractions will translate into merger fractions since merger timescales are shown, based on Millennium simulation catalogs, to be largely independent of environment. While galactic properties of close kinematic pairs (morphologies and star formation rates) may seem to be non-representative of an underlying galaxy population, they can be explained by taking into account well-known effects of environment, and changes caused by interactions. The latter is responsible for an increase of irregular galaxies in pairs by a factor of 50-75%, with a disproportionate increase in the number of irregular-irregular pairs (4-8 times), due to disturbance of about 15% of the disk galaxies in pairs. Another sign of interaction is an observed boost in specific star formation rate (factor 2-4) for the closest pairs. While significant for paired galaxies, this triggered star-formation due to interactions represents only about 5% of the integrated star-formation activity in our volume-limited sample. Although majority of close kinematic pairs are in dense environments, the effects of interactions appear to be strongest in the lower density environments. This may introduce strong biases into observational studies of mergers, especially those based on morphological criteria. Relative excess of post-starburst galaxies observed in paired galaxies (factor \sim2) as well as excess of AGNs (factor of over 2), linked with environmental dependence of the pair fractions could indicate that early phases of interactions and merging are plausible candidates for environmental quenching, observed in the global galaxy populations.