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Environmental Regulation and Horizontal Mergers in the Eco-industry

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  • Canton, Joan
  • David, Maia
  • Sinclair-Desgagné, Bernard

Abstract

This paper considers the welfare and policy implications of a merger between environment firms (i.e., firms managing environmental resources or supplying pollution abatement goods and services). The traditional analysis of mergers in Cournot oligopolies is extended in two ways. First, we show how a pollution tax affects the incentives of environment firms to merge. Second, we stress that mergers in the eco-industry impact welfare beyond what is observed in other sectors, due to an extra effect on pollution abatement efforts. This might lead to disagreements between an anti-trust agency seeking to limit market concentration which can be detrimental to consumer surplus and a benevolent regulator who maximizes total welfare.

Suggested Citation

  • Canton, Joan & David, Maia & Sinclair-Desgagné, Bernard, 2012. "Environmental Regulation and Horizontal Mergers in the Eco-industry," Strategic Behavior and the Environment, now publishers, vol. 2(2), pages 107-132, July.
  • Handle: RePEc:now:jnlsbe:102.00000012
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    References listed on IDEAS

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    1. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, pages 107-126.
    2. Eberhard Feess & Gerd Muehlheusser, 2002. "Strategic Environmental Policy, Clean Technologies and the Learning Curve," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 149-166.
    3. Khemani, R S & Shapiro, Daniel M, 1993. "An Empirical Analysis of Canadian Merger Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 161-177, June.
    4. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, pages 1037-1041.
    5. Marie-Laure Allain & Saïd Souam, 2004. "Concentration horizontale et relations verticales," Working Papers hal-00242914, HAL.
    6. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental Regulation and the Eco-Industry," Journal of Regulatory Economics, Springer, pages 141-155.
    7. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
    8. Joan Canton, 2007. "Environmental Taxation and International Eco-Industries," Working Papers 2007.26, Fondazione Eni Enrico Mattei.
    9. Alain-Désiré Nimubona & Bernard Sinclair-Desgagné, 2013. "The Pigouvian Tax Rule in the Presence of an Eco-Industry," Economics Bulletin, AccessEcon, pages 747-752.
    10. Ramón Faulí-Oller, 1997. "On merger profitability in a cournot setting," Working Papers. Serie AD 1997-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    11. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, pages 219-227.
    12. Hennessy, David A. & Roosen, Jutta, 1999. "Stochastic Pollution, Permits, and Merger Incentives," Journal of Environmental Economics and Management, Elsevier, vol. 37(3), pages 211-232, May.
    13. Joan Canton & Antoine Soubeyran & Hubert Stahn, 2008. "Environmental Taxation and Vertical Cournot Oligopolies: How Eco-industries Matter," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 369-382.
    14. Fauli-Oller, Ramon, 2002. "Mergers between Asymmetric Firms: Profitability and Welfare," Manchester School, University of Manchester, vol. 70(1), pages 77-87, January.
    15. Till Requate, 2005. "Timing and Commitment of Environmental Policy, Adoption of New Technology, and Repercussions on R&D," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 175-199.
    16. Fauli-Oller, Ramon, 1997. "On merger profitability in a Cournot setting," Economics Letters, Elsevier, vol. 54(1), pages 75-79, January.
    17. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-187, June.
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    Citations

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    Cited by:

    1. Damien Sans & Sonia Schwartz & Hubert Stahn, 2015. "On Abatement Services: Market Power and Efficient Environmental Regulation," Working Papers halshs-01182200, HAL.
    2. Creti, Anna & Sanin, María-Eugenia, 2017. "Does environmental regulation create merger incentives?," Energy Policy, Elsevier, vol. 105(C), pages 618-630.
    3. Mahelet G. Fikru, 2013. "Environmental Policies, Mergers and Welfare," Economía Mexicana NUEVA ÉPOCA, , pages 449-461.
    4. Damien Sans & Sonia Schwartz & Hubert Stahn, 2014. "About Polluting Eco-Industries: Optimal Provision of Abatement Goods and Pigouvian Fees," Working Papers halshs-01083464, HAL.
    5. Fikru, Mahelet G. & Gautier, Luis, 2016. "Mergers in Cournot markets with environmental externality and product differentiation," Resource and Energy Economics, Elsevier, vol. 45(C), pages 65-79.
    6. Tim Friehe, 2014. "Tacit collusion and liability rules," European Journal of Law and Economics, Springer, vol. 38(3), pages 453-469, December.
    7. Damien Sans, 2015. "Optimal Taxation Rule Reversal in the Presence of Gentle Polluters and Greedy Cleaners," Working Papers halshs-01247190, HAL.
    8. Kim, Seung-Leul & Lee, Sang-Ho, 2016. "The licensing of eco-technology under emission taxation: Fixed fee vs. auction," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 343-357.
    9. Seung-Leul Kim & Sang-Ho Lee, 2014. "Eco-Technology Licensing under Emission Tax: Royalty vs. Fixed-Fee," Korean Economic Review, Korean Economic Association, pages 273-300.
    10. Anna CRETI & María-Eugenia SANIN, 2016. "Does environmental regulation create merger incentives?," Documents de recherche 16-07, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    11. Lee, Sang-Ho & Nakamura, Tamotsu & Park, Chul-Hi, 2017. "Optimal Privatization Policy in a Mixed Eco-Industry in the Presence of Commitments on Abatement Technologies," MPRA Paper 80902, University Library of Munich, Germany.

    More about this item

    Keywords

    Eco-industry; Horizontal mergers; Environmental policy;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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