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Emission permits trading and downstream strategic market interaction

De Feo, Giuseppe and Resende, Joana and Sanin, Maria Eugenia (2013) Emission permits trading and downstream strategic market interaction. Manchester School. ISSN 1463-6786

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Abstract

This paper studies inefficiencies arising in oligopolies subject to environmental regulation based on tradable emission permits. We propose a duopoly model of upstream–downstream strategic competition: in the permits market a leader sets the price, whereas in the output market Cournot competition occurs. We find that strategic interaction in the output market gives rise to an additional distortion in the permits market where both firms adopt ‘rival's cost-rising’ strategies to gain a competitive advantage in the output market. As a result, the price of permits is always higher than firms' marginal abatement costs.

Item type: Article
ID code: 41827
Keywords: oligopolies, environmental regulation, emission permits, Economic Theory, Economics and Econometrics
Subjects: Social Sciences > Economic Theory
Department: Strathclyde Business School > Economics
Depositing user: Pure Administrator
Date Deposited: 30 Oct 2012 11:59
Last modified: 21 May 2015 15:05
Related URLs:
URI: http://strathprints.strath.ac.uk/id/eprint/41827

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