Oligopoly and Oligopsony Power in the Swedish Market
AbstractWe generalize Wirl’s (JEEM, 2009) “oligopoly meets oligopsony” model of a permit market for the case of heterogeneous players. Both oligopolists and oligopsonists reduce welfare by restricting trade. Having both in the market reinforces this. However, oligopolists seek to increase the price whereas oligopsonists seek to decrease the price. Having both in the market leads to ambiguous results for the permit price, and hence for the trading positions of individual agents. We apply the model to the so-called Swedish market, on which non-ETS emission allowances are traded between the 27 EU Member States. The numerical results are partly as expected: Market power restricts total trade and reduce total welfare, regardless of whether there are strategic buyers, strategic sellers, or both. The impact on the permit price is ambiguous. Strategic buyers primarily affect the welfare of strategic sellers, and vice versa, whereas fringe agents may well benefit from having both strategic buyers and sellers (relative to having either).
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Bibliographic InfoPaper provided by Department of Economics, University of Sussex in its series Working Paper Series with number 3212.
Date of creation: Feb 2012
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oligopoly; oligopsony; tradable permits; carbon dioxide;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
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- Beat Hintermann, 2011. "Market Power, Permit Allocation and Efficiency in Emission Permit Markets," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(3), pages 327-349, July.
- Makoto Tanaka, 2012. "Multi-Sector Model of Tradable Emission Permits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 51(1), pages 61-77, January.
- Capros, Pantelis & Mantzos, Leonidas & Parousos, Leonidas & Tasios, Nikolaos & Klaassen, Ger & Van Ierland, Tom, 2011. "Analysis of the EU policy package on climate change and renewables," Energy Policy, Elsevier, vol. 39(3), pages 1476-1485, March.
- Katrin Rehdanz & Richard S.J. Tol, 2004. "On Multi-Period Allocation Of Tradable Emission Permits," Working Papers FNU-43, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2004.
- Andrew Muller, R. & Mestelman, Stuart & Spraggon, John & Godby, Rob, 2002. "Can Double Auctions Control Monopoly and Monopsony Power in Emissions Trading Markets?," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 70-92, July.
- Gorecki, Paul & Lyons, Sean & Tol, Richard S. J., 2009. "EU Climate Change Policy 2013-2020: Thoughts on Property Rights and Market Choices," Papers WP292, Economic and Social Research Institute (ESRI).
- Wirl, Franz, 2009. "Oligopoly meets oligopsony: The case of permits," Journal of Environmental Economics and Management, Elsevier, vol. 58(3), pages 329-337, November.
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