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Market Power in a Storable-Good Market: Theory and Applications to Carbon and Sulfur Trading

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Author Info
Matti Liski
Juan Pablo Montero () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

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Abstract

We consider a market for storable pollution permits in which a large agent and a fringe of small agents gradually consume a stock of permits until they reach a long-run emissions limit. The subgame-perfect equilibrium exhibits no market power unless the large agent’s share of the initial stock of permits exceeds a critical level. We then apply our theoretical results to a global market for carbon dioxide emissions and the existing US market for sulfur dioxide emissions. We characterize competitive permit allocation profiles for the carbon market and find no evidence of market power in the sulfur market.

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Publisher Info
Paper provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 304.

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Date of creation: 2005
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Handle: RePEc:ioe:doctra:304

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Find related papers by JEL classification:
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

References listed on IDEAS
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.:

  1. A. Denny Ellerman & Juan-Pablo Montero, 2005. "The Efficiency and Robustness of Allowance Banking in the U.S. Acid Rain Program," Working Papers 0505, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
  2. Karp, Larry & Newbery, David M., 1993. "Intertemporal consistency issues in depletable resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 19, pages 881-931 Elsevier. [Downloadable!] (restricted)
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  3. Newbery, David M G, 1981. "Oil Prices, Cartels, and the Problem of Dynamic Inconsistency," Economic Journal, Royal Economic Society, vol. 91(363), pages 617-46, September. [Downloadable!] (restricted)
  4. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-85, September. [Downloadable!] (restricted)
  5. Juan-Pablo Montero, 1999. "Voluntary Compliance with Market-Based Environmental Policy: Evidence from the U.S. Acid Rain Program," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 998-1033, October. [Downloadable!] (restricted)
  6. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-93, October. [Downloadable!] (restricted)
  7. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 753-65, November. [Downloadable!] (restricted)
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  8. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law & Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  9. BERNARD, Alain & PALTSEV, Sergey & REILLY, John & VIELLE, Marc & VIGUIER, Laurent, 2003. "Russia's Role in the Kyoto Protocol," IDEI Working Papers 237, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  10. Tracy R. Lewis & Richard Schmalensee, 1982. "Cartel Deception in Nonrenewable Resource Markets," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 263-271, Spring. [Downloadable!] (restricted)
  11. Gregory M. Ellis & Robert Halvorsen, 2002. "Estimation of Market Power in a Nonrenewable Resource Industry," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 883-899, August. [Downloadable!] (restricted)
  12. Liski, Matti & Montero, Juan-Pablo, 2006. "Forward trading and collusion in oligopoly," Journal of Economic Theory, Elsevier, vol. 131(1), pages 212-230, November. [Downloadable!] (restricted)
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  13. Matti Liski & Juan-Pablo Montero, 2006. "On Pollution Permit Banking and Market Power," Journal of Regulatory Economics, Springer, vol. 29(3), pages 283-302, 05. [Downloadable!] (restricted)
  14. Matti Liski & Juan Pablo Montero, 2003. "A Note on Market Power in an Emission Permits Market with Banking," Documentos de Trabajo 236, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
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  1. Julien Pierre Chevallier, 2007. "A differential game of intertemporal emissions trading with market power," EconomiX Working Papers 2007-18, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
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