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Market power in a storable-good market - Theory and applications to carbon and sulfur trading

Author

Listed:
  • 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.

Suggested Citation

  • Matti Liski & Juan-Pablo Montero, 2005. "Market power in a storable-good market - Theory and applications to carbon and sulfur trading," Working Papers 0516, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    • Handle: RePEc:mee:wpaper:0516
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    Cited by:

    1. 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.
    2. Julien Chevallier, 2009. "Intertemporal Emissions Trading and Market Power: A Dominant Firm with Competitive Fringe Model," Working Papers halshs-00388207, HAL.
    3. Julien Chevallier, 2007. "A differential game of intertemporal emissions trading with market power," Working Papers hal-04139220, HAL.
    4. Anthony Heyes, 2009. "Is environmental regulation bad for competition? A survey," Journal of Regulatory Economics, Springer, vol. 36(1), pages 1-28, August.
    5. 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.
    6. repec:dau:papers:123456789/4228 is not listed on IDEAS

    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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