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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

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 Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0516.

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Date of creation: Nov 2005
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Handle: RePEc:mee:wpaper:0516

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Cited by:
  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.
  2. Anthony Heyes, 2009. "Is environmental regulation bad for competition? A survey," Journal of Regulatory Economics, Springer, vol. 36(1), pages 1-28, August.
  3. 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.
  4. Chevallier, Julien, 2011. "Intertemporal Emissions Trading and Market Power : A Dominant Firm with Competitive Fringe Model," Economics Papers from University Paris Dauphine 123456789/4601, Paris Dauphine University.
  5. Chevallier, Julien, 2006. "Intertemporal Emissions Trading and Allocation Rules: Gainers, Losers and the Spectre of Market Power," Economics Papers from University Paris Dauphine 123456789/4615, Paris Dauphine University.
  6. 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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