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Regulating Cournot Oligopoly with Environmental Externalities

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  • Shizuka Nishikawa

Abstract

We construct a model to analyze an oligopoly with two types of technology that produce an undifferentiated product: a cleaner but more expensive technology and a dirtier but less expensive technology. We construct a two-stage model in which firms choose their technology in the first stage and their profit maximizing quantities in the second stage. We then introduce stage zero, in which the government chooses its policy: a lump-sum fee, a specific tax, a subsidy, or a permit to label the product produced with the cleaner technology. We show that the government can achieve the highest social welfare with eco-labeling when most of the consumers are eco-conscious. Otherwise a subsidy or a tax achieves the highest social welfare depending on the degree of environmental damage. Copyright International Atlantic Economic Society 2015

Suggested Citation

  • Shizuka Nishikawa, 2015. "Regulating Cournot Oligopoly with Environmental Externalities," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(4), pages 449-462, December.
    • Handle: RePEc:kap:atlecj:v:43:y:2015:i:4:p:449-462
    DOI: 10.1007/s11293-015-9475-1
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    References listed on IDEAS

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    7. Espínola-Arredondo, Ana & Zhao, Huan, 2012. "Environmental policy in a linear city model of product differentiation," Environment and Development Economics, Cambridge University Press, vol. 17(4), pages 461-477, August.
    8. Klaus CONRAD, 2005. "Price Competition and Product Differentiation when Goods have Network Effects," Industrial Organization 0502002, University Library of Munich, Germany.
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    Cited by:

    1. Friedrich, Daniel, 2021. "Mixing fossil- and bio-polymers for internalisation of environmental damage: An evidence-based model-theoretical economic analysis," Ecological Economics, Elsevier, vol. 186(C).

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    More about this item

    Keywords

    Cournot oligopoly; Environmental externalities; Tax; Subsidy; Lump-sum fee; Eco-labeling; JEL; H23; L13; Q58;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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