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 Environmental Economics Research Hub, Crawford School of Public Policy, The Australian National University in its series Environmental Economics Research Hub Research Reports with number 1059.
Date of creation: Mar 2010
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Emissions trading; Initial permit allocation; Bertrand competition; EU ETS; Endogenous technology choice; Kreps and Scheinkman;
Other versions of this item:
- Calford, Evan M. & Heinzel, Christoph & Betz, Regina, 2010. "Initial Allocation Effects in Permit Markets with Bertrand Output Oligopoly," Research Reports 95066, Australian National University, Environmental Economics Research Hub.
- 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-2010-06-26 (All new papers)
- NEP-BEC-2010-06-26 (Business Economics)
- NEP-COM-2010-06-26 (Industrial Competition)
- NEP-ENE-2010-06-26 (Energy Economics)
- NEP-ENV-2010-06-26 (Environmental Economics)
- NEP-IND-2010-06-26 (Industrial Organization)
- NEP-MIC-2010-06-26 (Microeconomics)
- NEP-REG-2010-06-26 (Regulation)
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