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

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  • Matti Liski
  • Juan-Pablo Montero

    ()
    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

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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Bibliographic Info

Paper provided by Instituto de Economia. 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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Cited by:
  1. Li, Shoude, 2013. "Emission permit banking, pollution abatement and production–inventory control of the firm," International Journal of Production Economics, Elsevier, vol. 146(2), pages 679-685.
  2. Julien Chevallier, 2009. "Intertemporal Emissions Trading and Allocation Rules: Gainers, Losers and the Spectre of Market Power," Working Papers halshs-00124713, HAL.
  3. Julien Chevallier, 2009. "Intertemporal Emissions Trading and Market Power: A Dominant Firm with Competitive Fringe Model," Working Papers halshs-00388207, HAL.
  4. 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.
  5. Li, Shoude & Gu, Mengdi, 2012. "The effect of emission permit trading with banking on firm's production–inventory strategies," International Journal of Production Economics, Elsevier, vol. 137(2), pages 304-308.

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