Market power in tradable emission markets: a laboratory testbed for emission trading in Port Phillip Bay, Victoria
AbstractIn theory, competitive emission permit markets minimise total abatement cost for any emission ceiling. Permit markets are often imperfectly competitive, however, if they are thin and dominated by large firms. The dominant firm(s) could exercise market power and increase other firmsâ costs of pollution control, while reducing their own emission control costs. This paper reports a testbed laboratory experiment to examine whether a dominant firm can exercise market power in a permit market organised using the double auction trading institution. Our parameters approximate the abatement costs of sources in a proposed tradable emissions market for the reduction of nitrogen in the Port Phillip Watershed in Victoria, Australia. We vary across treatments the initial (pre-trade) allocation of permits to sources, so that in one treatment the seller of permits is a monopolist and in another treatment the selling side of the market is duopolistic. We also vary the information that subjects have about the number and abatement costs of their competitors. We find that prices and seller profits are higher and efficiency is lower on average in the monopoly sessions compared to the duopoly sessions, but the differences are not substantial and are not statistically significant due to pronounced variation across sessions. Moreover, prices, profits and transaction volumes are usually much closer to the competitive equilibrium than the monopoly equilibrium.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Ecological Economics.
Volume (Year): 46 (2003)
Issue (Month): 3 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/ecolecon
Other versions of this item:
- Cason, Timothy N. & Gangadharan, Lata & Duke, Charlotte, 2003. "Market Power in Tradable Emission Markets: A Laboratory Testbed for Emission Trading in Port Phillip Bay, Victoria," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 57841, Australian Agricultural and Resource Economics Society.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Forsythe, Robert & Palfrey, Thomas R. & Plott, Charles R., .
"Asset Valuation in an Experimental Market,"
299, California Institute of Technology, Division of the Humanities and Social Sciences.
- Friedman, Daniel & Harrison, Glenn W & Salmon, Jon W, 1984. "The Informational Efficiency of Experimental Asset Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 349-408, June.
- Hahn, Robert W., 1982.
"Market Power and Transferable Property Rights,"
402, California Institute of Technology, Division of the Humanities and Social Sciences.
- Ledyard, John O. & Szakaly, Kristin E., .
"Designing Organizations for Trading Pollution Rights,"
838, California Institute of Technology, Division of the Humanities and Social Sciences.
- Ledyard, John O. & Szakaly-Moore, Kristin, 1994. "Designing organizations for trading pollution rights," Journal of Economic Behavior & Organization, Elsevier, vol. 25(2), pages 167-196, October.
- John Ledyard & Kristin Szakaly-Moore, 1993. "Designing Organizations for Trading Pollution Rights," Experimental 9307001, EconWPA, revised 28 Jul 1993.
- Jamie Brown-Kruse & Steven R Elliot & Rob Godby, 1995. "Strategic Manipulation of Pollution Permit Markets: An Experimental Approach," Department of Economics Working Papers 1995-03, McMaster University.
- Isaac, R. Mark & Ramey, Valerie & Williams, Arlington W., 1984. "The effects of market organization on conspiracies in restraint of trade," Journal of Economic Behavior & Organization, Elsevier, vol. 5(2), pages 191-222, June.
- Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
- Van Boening, Mark V & Wilcox, Nathaniel T, 1996. "Avoidable Cost: Ride a Double Auction Roller Coaster," American Economic Review, American Economic Association, vol. 86(3), pages 461-77, June.
- Andrew Muller, R. & Mestelman, Stuart & Spraggon, John & Godby, Rob, 2002. "Can Double Auctions Control Monopoly and Monopsony Power in Emissions Trading Markets?," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 70-92, July.
- Maloney, Michael T. & Yandle, Bruce, 1984. "Estimation of the cost of air pollution control regulation," Journal of Environmental Economics and Management, Elsevier, vol. 11(3), pages 244-263, September.
- Bohm, Peter & Carlen, Bjorn, 1999. "Emission quota trade among the few: laboratory evidence of joint implementation among committed countries," Resource and Energy Economics, Elsevier, vol. 21(1), pages 43-66, January.
- Morten Søberg, 2000. "Imperfect competition, sequential auctions, and emissions trading: An experimental evaluation," Discussion Papers 280, Research Department of Statistics Norway.
- Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
- Jaehn, Florian & Letmathe, Peter, 2010. "The emissions trading paradox," European Journal of Operational Research, Elsevier, vol. 202(1), pages 248-254, April.
- Ghosh, Gaurav & Kwasnica, Anthony & Shortle, James, 2010. "A Laboratory Experiment to Compare Two Market Institutions for Emissions Trading," FCN Working Papers 18/2010, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
- Tisdell, John G., 2006.
"Bringing Biophysical Models into the Economic Laboratory: An Experimental Analysis of Sediment Trading in Australia,"
2006 Annual Meeting, August 12-18, 2006, Queensland, Australia
25631, International Association of Agricultural Economists.
- Tisdell, John, 2007. "Bringing biophysical models into the economic laboratory: An experimental analysis of sediment trading in Australia," Ecological Economics, Elsevier, vol. 60(3), pages 584-595, January.
- Requate, Till, 2005. "Environmental Policy under Imperfect Competition : A Survey," Economics Working Papers 2005,12, Christian-Albrechts-University of Kiel, Department of Economics.
- Huang, Ming-Yuan & Alavalapati, Janaki R.R. & Carter, Douglas R. & Langholtz, Matthew H., 2007. "Is the choice of renewable portfolio standards random?," Energy Policy, Elsevier, vol. 35(11), pages 5571-5575, November.
- Duke, Charlotte & Gangadharan, Lata, 2008. "Salinity in water markets: An experimental investigation of the Sunraysia Salinity Levy in Australia," Ecological Economics, Elsevier, vol. 68(1-2), pages 486-503, December.
- Douglas D. Davis & Korenok Oleg & Edward S. Prescott, 2011. "An Experimental Analysis of Contingent Capital with Market-Price Triggers," Working Papers 1102, VCU School of Business, Department of Economics, revised Apr 2013.
- Bodo Sturm & Joachim Weimann, 2006. "Experiments in Environmental Economics and Some Close Relatives," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 419-457, 07.
- Oczkowski, Edward, 2008. "Excess Demand, Market Power and Price Adjustment in Clearinghouse Auction Markets for Water," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 38(2), pages 261-276, September.
- Vivi Alatas & Lisa Cameron & Ananish Chaudhuri & Nisvan Erkal & Lata Gangadharan, 2006.
"Subject Pool Effects in a Corruption Experiment: A Comparison of Indonesian Public Servants and Indonesian Students,"
Department of Economics - Working Papers Series
975, The University of Melbourne.
- Vivi Alatas & Lisa Cameron & Ananish Chaudhuri & Nisvan Erkal & Lata Gangadharan, 2009. "Subject pool effects in a corruption experiment: A comparison of Indonesian public servants and Indonesian students," Experimental Economics, Springer, vol. 12(1), pages 113-132, March.
- Bodo Sturm, 2008. "Market Power in Emissions Trading Markets Ruled by a Multiple Unit Double Auction: Further Experimental Evidence," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(4), pages 467-487, August.
- C. Duke & L. Gangadharan, 2005. "Salinity in Water Markets : An ExperimentalInvestigation of the Sunraysia Salinity Levy, Victoria," Department of Economics - Working Papers Series 950, The University of Melbourne.
- Tisdell, John G. & Grainger, Corinne, 2008.
"An Experimental Economic Analysis of Carbon Trading Options for Australia,"
2008 Conference, August 28-29, 2008, Nelson, New Zealand
96661, New Zealand Agricultural and Resource Economics Society.
- Tisdell, John G. & Grainger, Corinne, 2009. "An Experimental Economic Analysis of Carbon Trading Options for Australia," 2009 Conference, August 16-22, 2009, Beijing, China 51044, International Association of Agricultural Economists.
- Arthur Caplan, 2008. "Incremental and Average Control Costs in a Model of Water Quality Trading with Discrete Abatement Units," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 41(3), pages 419-435, November.
- Antelo, Manel & Bru, Lluís, 2009. "Permit markets, market power, and the trade-off between efficiency and revenue raising," Resource and Energy Economics, Elsevier, vol. 31(4), pages 320-333, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.