IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v337y2024i3d10.1007_s10479-023-05674-y.html
   My bibliography  Save this article

The abatement game in a dynamic oligopoly: social welfare versus profits

Author

Listed:
  • Domenico Buccella

    (Kozminski University)

  • Luciano Fanti

    (University of Pisa)

  • Luca Gori

    (University of Pisa)

  • Mauro Sodini

    (University of Naples ‘Federico II’
    Technical University of Ostrava)

Abstract

This article considers an N-firm oligopoly with abating and non-abating firms and analyses a dynamic setting in which the environmental regulator sets the tax rate to incentivise firms to undertake emission-reduction actions according to different hypotheses (fixed rule and optimal rule). The behaviour of the public authority sharply affects the firm’s (individual) incentive to move towards the abatement activity over time. This changes the number of (non)abating firms on the market and the corresponding social welfare outcomes. The article eventually shows that the environmental policy may cause oscillations resulting in a coexistence of the two types of firms in the long term and pinpoints the welfare outcomes emerging in the model.

Suggested Citation

  • Domenico Buccella & Luciano Fanti & Luca Gori & Mauro Sodini, 2024. "The abatement game in a dynamic oligopoly: social welfare versus profits," Annals of Operations Research, Springer, vol. 337(3), pages 1037-1065, June.
    • Handle: RePEc:spr:annopr:v:337:y:2024:i:3:d:10.1007_s10479-023-05674-y
    DOI: 10.1007/s10479-023-05674-y
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-023-05674-y
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10479-023-05674-y?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. A. A. Elsadany & A. M. Awad, 2019. "Dynamics and chaos control of a duopolistic Bertrand competitions under environmental taxes," Annals of Operations Research, Springer, vol. 274(1), pages 211-240, March.
    2. Frederick Ploeg & Aart Zeeuw, 1992. "International aspects of pollution control," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 2(2), pages 117-139, March.
    3. Tramontana, F. & Gardini, L. & Ferri, P., 2010. "The dynamics of the NAIRU model with two switching regimes," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 681-695, April.
    4. Fabio Tramontana & Frank Westerhoff & Laura Gardini, 2014. "One-dimensional maps with two discontinuity points and three linear branches: mathematical lessons for understanding the dynamics of financial markets," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 27-51, April.
    5. Gerard Meijden & Cees Withagen & Hassan Benchekroun, 2022. "An Oligopoly-Fringe Model with HARA Preferences," Dynamic Games and Applications, Springer, vol. 12(3), pages 954-976, September.
    6. Zeppini, Paolo, 2015. "A discrete choice model of transitions to sustainable technologies," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 187-203.
    7. repec:tiu:tiucen:200880 is not listed on IDEAS
    8. Carraro, Carlo & Siniscalco, Domenico, 1993. "Strategies for the international protection of the environment," Journal of Public Economics, Elsevier, vol. 52(3), pages 309-328, October.
    9. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2023. "Environmental delegation versus sales delegation: a game-theoretic analysis," Environment and Development Economics, Cambridge University Press, vol. 28(5), pages 469-485, October.
    10. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    11. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
    12. Xu, Lili & Chen, Yuyan & Lee, Sang-Ho, 2022. "Emission tax and strategic environmental corporate social responsibility in a Cournot–Bertrand comparison," Energy Economics, Elsevier, vol. 107(C).
    13. Lee, Sang-Ho & Park, Chul-Hi, 2021. "Environmental regulations in private and mixed duopolies: Taxes on emissions versus green R&D subsidies," Economic Systems, Elsevier, vol. 45(1).
    14. Manuel Frondel & Jens Horbach & Klaus Rennings, 2007. "End‐of‐pipe or cleaner production? An empirical comparison of environmental innovation decisions across OECD countries," Business Strategy and the Environment, Wiley Blackwell, vol. 16(8), pages 571-584, December.
    15. Requate, Till, 2005. "Dynamic incentives by environmental policy instruments--a survey," Ecological Economics, Elsevier, vol. 54(2-3), pages 175-195, August.
    16. Akihiko Yanase & Keita Kamei, 2022. "Dynamic Game of International Pollution Control with General Oligopolistic Equilibrium: Neary Meets Dockner and Long," Dynamic Games and Applications, Springer, vol. 12(3), pages 751-783, September.
    17. Conrad, Klaus & Wang, Jianmin, 1993. "The effect of emission taxes and abatement subsidies on market structure," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 499-518.
    18. Fredrik Carlsson, 2000. "Environmental Taxation and Strategic Commitment in Duopoly Models," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 15(3), pages 243-256, March.
    19. Oates, Wallace E. & Strassmann, Diana L., 1984. "Effluent fees and market structure," Journal of Public Economics, Elsevier, vol. 24(1), pages 29-46, June.
    20. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2021. "To abate, or not to abate? A strategic approach on green production in Cournot and Bertrand duopolies," Energy Economics, Elsevier, vol. 96(C).
    21. Bischi, Gian Italo & Lamantia, Fabio & Radi, Davide, 2015. "An evolutionary Cournot model with limited market knowledge," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 219-238.
    22. R. Simpson, 1995. "Optimal pollution taxation in a Cournot duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 6(4), pages 359-369, December.
    23. Elias Asproudis & Maria Gil-Moltó, 2015. "Green Trade Unions: Structure, Wages and Environmental Technology," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(2), pages 165-189, February.
    24. Lili Xu & Sang‐Ho Lee, 2023. "Cournot–Bertrand comparisons under double managerial delegation contracts with sales and environmental incentives," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(6), pages 3409-3421, September.
    25. Benchekroun, Hassan & Ray Chaudhuri, Amrita, 2011. "Environmental policy and stable collusion: The case of a dynamic polluting oligopoly," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 479-490, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2024. "Corporate Social Responsibility: A theory of the firm revisited with environmental issues," GLO Discussion Paper Series 1421, Global Labor Organization (GLO).
    2. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2021. "To abate, or not to abate? A strategic approach on green production in Cournot and Bertrand duopolies," Energy Economics, Elsevier, vol. 96(C).
    3. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2022. "‘Green’ managerial delegation theory," Environment and Development Economics, Cambridge University Press, vol. 27(3), pages 223-249, June.
    4. Sumi Cho & Sang‐Ho Lee, 2024. "Cross ownership and environmental corporate social responsibility with environmental cooperation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(1), pages 446-468, January.
    5. Requate, Till, 2005. "Environmental Policy under Imperfect Competition: A Survey," Economics Working Papers 2005-12, Christian-Albrechts-University of Kiel, Department of Economics.
    6. Jihad C. Elnaboulsi, 2015. "Environmental Regulation and Policy Design: The Impact of the Regulator?s Ecological Conscience on the Tax Setting Process," Working Papers 2015-11, CRESE.
    7. Domenico Buccella & Luciano Fanti & Luca Gori & Mauro Sodini, 2024. "Green subsidies as strategic trade policy tools," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 26(4), pages 741-757, October.
    8. Juan Bárcena-Ruiz & María Garzón, 2014. "Multiproduct Firms and Environmental Policy Coordination," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(3), pages 407-431, November.
    9. Claudia Ranocchia & Luca Lambertini, 2021. "Porter Hypothesis vs Pollution Haven Hypothesis: Can There Be Environmental Policies Getting Two Eggs in One Basket?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(1), pages 177-199, January.
    10. Xubei Lian & Leonard F. S. Wang & Kai Zhang, 2025. "Cross‐Ownership, Green Managerial Delegation, and Emission Taxation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(2), pages 1191-1205, March.
    11. Marco Catola & Silvia Leoni, 2025. "Pollution Abatement and Lobbying in a Cournot Game: An Agent-Based Modelling Approach," Computational Economics, Springer;Society for Computational Economics, vol. 65(2), pages 637-664, February.
    12. Mingqing Xing & Tingting Tan & Xuejun Ma & Xia Wang, 2023. "Environmental tax policy and optimal privatization in a polluting mixed duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(6), pages 3016-3025, September.
    13. Lili Xu & Sang‐Ho Lee, 2022. "Non‐cooperative and cooperative environmental corporate social responsibility with emission taxes," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 2849-2862, October.
    14. Antelo, Manel & Loureiro, Maria L., 2009. "Asymmetric information, signaling and environmental taxes in oligopoly," Ecological Economics, Elsevier, vol. 68(5), pages 1430-1440, March.
    15. Yasunori Ouchida & Daisaku Goto, 2022. "Strategic non‐use of the government's precommitment ability for emissions taxation: Environmental R&D formation in a Cournot duopoly," Australian Economic Papers, Wiley Blackwell, vol. 61(1), pages 181-206, March.
    16. Marie-Laure Cabon-Dhersin & Natacha Raffin, 2023. "Cooperation in Green R&D and Environmental Policies: Taxes or Standards," Working Papers hal-03610541, HAL.
    17. Meredith Fowlie & Mar Reguant & Stephen P. Ryan, 2016. "Market-Based Emissions Regulation and Industry Dynamics," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 249-302.
    18. Ahmed Kouider Aissa & Alessandro Tampieri, 2024. "Green Consumers and the Transition to Sustainable Production," Working Papers - Economics wp2024_04.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    19. Kuang-Feng Cheng & Chien-Shu Tsai & Chu-Chuan Hsu & Szu-Chung Lin & Ting-Chung Tsai & Jen-Yao Lee, 2019. "Emission Tax and Compensation Subsidy with Cross-Industry Pollution," Sustainability, MDPI, vol. 11(4), pages 1-23, February.
    20. Lili Xu & Sang‐Ho Lee, 2023. "Cournot–Bertrand comparisons under double managerial delegation contracts with sales and environmental incentives," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(6), pages 3409-3421, September.

    More about this item

    Keywords

    Abatement; Oligopoly; Nash equilibrium; Environmental regulator; Dynamics;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:337:y:2024:i:3:d:10.1007_s10479-023-05674-y. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.