Initial Allocation Effects in Permit Markets with Bertrand Output Oligopoly
AbstractWe analyse the efficiency effects of the initial permit allocation given to firms with market power in both permit and output market. We examine two models: a long- run model with endogenous technology and capacity choice, and a short-run model with fixed technology and capacity. In the long run, quantity pre-commitment with Bertrand competition can yield Cournot outcomes also under emissions trading. In the short run, Bertrand output competition reproduces the effects derived under Cournot competition, but displays higher pass-through profits. In a second-best setting of overallocation, a tighter emissions target tends to improve permit-market efficiency in the short run.
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Bibliographic InfoPaper provided by Australian National University, Environmental Economics Research Hub in its series Research Reports with number 95066.
Date of creation: Mar 2010
Date of revision:
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Emissions trading; Initial permit allocation; Bertrand competition; EU ETS; Endogenous technology choice; Kreps and Scheinkman; Resource /Energy Economics and Policy; L13; Q28; D43;
Other versions of this item:
- Evan Calford & Christoph Heinzel & Regina Betz, 2010. "Initial Allocation Effects in Permit Markets with Bertrand Output Oligopoly," Environmental Economics Research Hub Research Reports 1059, Environmental Economics Research Hub, Crawford School of Public Policy, The Australian National University.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-13 (All new papers)
- NEP-COM-2010-11-13 (Industrial Competition)
- NEP-ENE-2010-11-13 (Energy Economics)
- NEP-ENV-2010-11-13 (Environmental Economics)
- NEP-IND-2010-11-13 (Industrial Organization)
- NEP-MIC-2010-11-13 (Microeconomics)
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