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Bilateral Oligopoly In Pollution Permit Markets: Experimental Evidence

Author

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  • KURT SCHNIER
  • MARTIN DOYLE
  • JAMES R. RIGBY
  • ANDREW J. YATES

Abstract

type="main" xml:id="ecin12087-abs-0001"> We experimentally investigate behavior in a bilateral oligopoly using a supply function equilibria model discussed by Klemperer and Meyer (1989), Hendricks and McAfee (2010), and Malueg and Yates (2009). We focus on the role that market size and the degree of firm heterogeneity have on the market equilibrium. Our results indicate that subjects within the experiment recognize the strategic incentives in a bilateral oligopoly, but they do not exploit these incentives to the exact magnitude predicted by theory. We find weaker support for predicted market outcomes, as market efficiency does not depend on market size, and in some cases buyers or sellers are more successful at extracting the rents from the market. ( JEL L13 , Q5 , C9 )

Suggested Citation

  • Kurt Schnier & Martin Doyle & James R. Rigby & Andrew J. Yates, 2014. "Bilateral Oligopoly In Pollution Permit Markets: Experimental Evidence," Economic Inquiry, Western Economic Association International, vol. 52(3), pages 1060-1079, July.
    • Handle: RePEc:bla:ecinqu:v:52:y:2014:i:3:p:1060-1079
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    References listed on IDEAS

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    1. David Malueg & Andrew Yates, 2009. "Bilateral Oligopoly, Private Information, and Pollution Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(4), pages 553-572, August.
    2. Wirl, Franz, 2009. "Oligopoly meets oligopsony: The case of permits," Journal of Environmental Economics and Management, Elsevier, vol. 58(3), pages 329-337, November.
    3. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    4. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-953, October.
    5. Kenneth Hendricks & R. Preston Mcafee, 2010. "A Theory Of Bilateral Oligopoly," Economic Inquiry, Western Economic Association International, vol. 48(2), pages 391-414, April.
    6. Krysiak, Frank C. & Schweitzer, Patrick, 2010. "The optimal size of a permit market," Journal of Environmental Economics and Management, Elsevier, vol. 60(2), pages 133-143, September.
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    Cited by:

    1. Dickson, Alex & MacKenzie, Ian A., 2018. "Strategic trade in pollution permits," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 94-113.
    2. Wang, Xu & Zhu, Lei & Liu, Pengfei, 2021. "Manipulation via endowments: Quantifying the influence of market power on the emission trading scheme," Energy Economics, Elsevier, vol. 103(C).
    3. Tanaka, Kenta & Matsukawa, Isamu & Managi, Shunsuke, 2020. "An experimental investigation of bilateral oligopoly in emissions trading markets," China Economic Review, Elsevier, vol. 59(C).

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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