IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/13511.html
   My bibliography  Save this paper

Do Oligopolists Pollute Less? Evidence from a Restructured Electricity Market

Author

Listed:
  • Erin T. Mansur

Abstract

Electricity restructuring has created the opportunity for producers to exercise market power. Oligopolists increase price by distorting output decisions, causing cross-firm production inefficiencies. This study estimates the environmental implications of production inefficiencies attributed to market power in the Pennsylvania, New Jersey, and Maryland electricity market. Air pollution fell substantially during 1999, the year in which both electricity restructuring and new environmental regulation took effect. I find that strategic firms reduced their emissions by approximately 20% relative to other firms and their own historic emissions. Next, I compare observed behavior with estimates of production, and therefore emissions, in a competitive market. According to a model of competitive behavior, changing costs explain approximately two-thirds of the observed pollution reductions. The remaining third can be attributed to firms exercising market power.

Suggested Citation

  • Erin T. Mansur, 2007. "Do Oligopolists Pollute Less? Evidence from a Restructured Electricity Market," NBER Working Papers 13511, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13511
    Note: EEE IO
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w13511.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. James B. Bushnell & Erin T. Mansur, 2005. "Consumption Under Noisy Price Signals: A Study Of Electricity Retail Rate Deregulation In San Diego," Journal of Industrial Economics, Wiley Blackwell, vol. 53(4), pages 493-513, December.
    2. Burtraw, Dallas & Krupnick, Alan & Palmer, Karen & Paul, Anthony & Toman, Michael & Bloyd, Cary, 2003. "Ancillary benefits of reduced air pollution in the US from moderate greenhouse gas mitigation policies in the electricity sector," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 650-673, May.
    3. Paul L. Joskow & Edward Kohn, 2002. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-35.
    4. Levin, Dan, 1985. "Taxation within Cournot oligopoly," Journal of Public Economics, Elsevier, vol. 27(3), pages 281-290, August.
    5. Catherine D. Wolfram, 1998. "Strategic Bidding in a Multiunit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 703-725, Winter.
    6. Bushnell, James & Wolfram, Catherine, 2008. "Electricity Markets," Staff General Research Papers Archive 31547, Iowa State University, Department of Economics.
    7. Fullerton, Don & Metcalf, Gilbert E., 2002. "Cap and trade policies in the presence of monopoly and distortionary taxation," Resource and Energy Economics, Elsevier, vol. 24(4), pages 327-347, November.
    8. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
    9. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    10. Endres, A, 1978. "Monopoly-Power as a Means for Pollution-Control?," Journal of Industrial Economics, Wiley Blackwell, vol. 27(2), pages 185-187, December.
    11. Fowlie, Meredith, 2005. "Emissions Trading, Electricity Industry Restructuring and Investment in Pollution Abatement," 2005 Annual meeting, July 24-27, Providence, RI 19265, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Erin T. Mansur, 2008. "Measuring Welfare in Restructured Electricity Markets," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 369-386, May.
    13. Frank A. Wolak & Robert H. Patrick, 2001. "The Impact of Market Rules and Market Structure on the Price Determination Process in the England and Wales Electricity Market," NBER Working Papers 8248, National Bureau of Economic Research, Inc.
    14. Mansur, Erin T, 2007. "Upstream Competition and Vertical Integration in Electricity Markets," Journal of Law and Economics, University of Chicago Press, vol. 50(1), pages 125-156, February.
    15. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
    16. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
    17. Steven L. Puller, 2007. "Pricing and Firm Conduct in California's Deregulated Electricity Market," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 75-87, February.
    18. Asch, Peter & Seneca, Joseph J., 1976. "Monopoly and external costs: An application of second-best theory to the automobile industry," Journal of Environmental Economics and Management, Elsevier, vol. 3(1), pages 69-79, June.
    19. Burtraw, Dallas & Palmer, Karen & Krupnick, Alan & Toman, Michael & Paul, Anthony & Bloyd, Cary, 2001. "Ancillary Benefits of Reduced Air Pollution in the United States from Moderate Greenhouse Gas Mitigation Policies in the Electricity Sector," RFF Working Paper Series dp-01-61-, Resources for the Future.
    20. 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.
    21. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Erin T. Mansur, 2007. "Prices vs. Quantities: Environmental Regulation and Imperfect Competition," NBER Working Papers 13510, National Bureau of Economic Research, Inc.
    2. Halkos, George & Polemis, Michael, 2018. "Does market structure trigger efficiency? Evidence for the USA before and after the financial crisis," MPRA Paper 84511, University Library of Munich, Germany.
    3. Johnsen, Reid & LaRiviere, Jacob & Wolff, Hendrik, 2016. "Estimating Indirect Benefits: Fracking, Coal and Air Pollution," IZA Discussion Papers 10170, Institute of Labor Economics (IZA).
    4. Benatia, David, 2022. "Ring the alarm! Electricity markets, renewables, and the pandemic," Energy Economics, Elsevier, vol. 106(C).
    5. Lucas Davis & Catherine Hausman, 2014. "The Value of Transmission in Electricity Markets: Evidence from a Nuclear Power Plant Closure," NBER Working Papers 20186, National Bureau of Economic Research, Inc.
    6. Linn, Joshua, 2010. "The effect of cap-and-trade programs on firms' profits: Evidence from the Nitrogen Oxides Budget Trading Program," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 1-14, January.
    7. Asane-Otoo, Emmanuel, 2016. "Competition policies and environmental quality: Empirical analysis of the electricity sector in OECD countries," Energy Policy, Elsevier, vol. 95(C), pages 212-223.
    8. Meredith Fowlie, 2008. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," NBER Working Papers 14421, National Bureau of Economic Research, Inc.
    9. Agnolucci, Paolo & Arvanitopoulos, Theodoros, 2019. "Industrial characteristics and air emissions: Long-term determinants in the UK manufacturing sector," Energy Economics, Elsevier, vol. 78(C), pages 546-566.
    10. Genc, Talat S. & Reynolds, Stanley S., 2019. "Who should own a renewable technology? Ownership theory and an application," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 213-238.
    11. Meghan R. Busse & Christopher R. Knittel & Jorge Silva-Risso & Florian Zettelmeyer, 2016. "Who is exposed to gas prices? How gasoline prices affect automobile manufacturers and dealerships," Quantitative Marketing and Economics (QME), Springer, vol. 14(1), pages 41-95, March.
    12. Erin Mansur, 2013. "Prices versus quantities: environmental regulation and imperfect competition," Journal of Regulatory Economics, Springer, vol. 44(1), pages 80-102, August.
    13. Brown, David P. & Eckert, Andrew & Eckert, Heather, 2018. "Carbon pricing with an output subsidy under imperfect competition: The case of Alberta's restructured electricity market," Resource and Energy Economics, Elsevier, vol. 52(C), pages 102-123.
    14. Chaton, Corinne & Guillerminet, Marie-Laure, 2013. "Competition and environmental policies in an electricity sector," Energy Economics, Elsevier, vol. 36(C), pages 215-228.
    15. George E. Halkos & Michael L. Polemis, 2019. "The impact of market structure on environmental efficiency in the United States: A quantile approach," Business Strategy and the Environment, Wiley Blackwell, vol. 28(1), pages 127-142, January.
    16. Anthony Heyes, 2009. "Is environmental regulation bad for competition? A survey," Journal of Regulatory Economics, Springer, vol. 36(1), pages 1-28, August.
    17. Kim, Dongha & Jeong, Jinook, 2016. "Electricity restructuring, greenhouse gas emissions efficiency and employment reallocation," Energy Policy, Elsevier, vol. 92(C), pages 468-476.
    18. Knittel, Christopher R. & Metaxoglou, Konstantinos & Trindade, André, 2019. "Environmental implications of market structure: Shale gas and electricity markets," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 511-550.

    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. Erin T. Mansur, 2007. "Prices vs. Quantities: Environmental Regulation and Imperfect Competition," NBER Working Papers 13510, National Bureau of Economic Research, Inc.
    2. Nazemi, Ali & Mashayekhi, Mehdi, 2015. "Competitiveness assessment of Iran's restructured electricity market," Energy Economics, Elsevier, vol. 49(C), pages 308-316.
    3. Erin T. Mansur, 2008. "Measuring Welfare in Restructured Electricity Markets," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 369-386, May.
    4. Erin Mansur, 2013. "Prices versus quantities: environmental regulation and imperfect competition," Journal of Regulatory Economics, Springer, vol. 44(1), pages 80-102, August.
    5. Albert Banal-Estañol & Augusto Rupérez Micola, 2009. "Composition of Electricity Generation Portfolios, Pivotal Dynamics, and Market Prices," Management Science, INFORMS, vol. 55(11), pages 1813-1831, November.
    6. Meredith Fowlie, 2008. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," NBER Working Papers 14421, National Bureau of Economic Research, Inc.
    7. David P. Brown & Derek E. H. Olmstead, 2017. "Measuring market power and the efficiency of Alberta's restructured electricity market: An energy-only market design," Canadian Journal of Economics, Canadian Economics Association, vol. 50(3), pages 838-870, August.
    8. Graf, Christoph & Wozabal, David, 2013. "Measuring competitiveness of the EPEX spot market for electricity," Energy Policy, Elsevier, vol. 62(C), pages 948-958.
    9. 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.
    10. Chu, Yin & Chang, Chun-Ping, 2020. "Vertical separation of transmission control and market efficiency in the wholesale electricity market," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    11. Ali Hortaçsu & Steven L. Puller, 2008. "Understanding strategic bidding in multi‐unit auctions: a case study of the Texas electricity spot market," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 86-114, March.
    12. David P. Brown & Andrew Eckert, 2018. "Analyzing the Impact of Electricity Market Structure Changes and Mergers: The Importance of Forward Commitments," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(1), pages 101-137, February.
    13. Crawford, Gregory S. & Crespo, Joseph & Tauchen, Helen, 2007. "Bidding asymmetries in multi-unit auctions: Implications of bid function equilibria in the British spot market for electricity," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1233-1268, December.
    14. Dressler, Luisa, 2016. "Support schemes for renewable electricity in the European Union: Producer strategies and competition," Energy Economics, Elsevier, vol. 60(C), pages 186-196.
    15. Sirin, Selahattin Murat & Erten, Ibrahim, 2022. "Price spikes, temporary price caps, and welfare effects of regulatory interventions on wholesale electricity markets," Energy Policy, Elsevier, vol. 163(C).
    16. Fabra, Natalia & Toro, Juan, 2005. "Price wars and collusion in the Spanish electricity market," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 155-181, April.
    17. Xuejuan Su, 2015. "Have customers benefited from electricity retail competition?," Journal of Regulatory Economics, Springer, vol. 47(2), pages 146-182, April.
    18. Luis Orea & Jevgenijs Steinbuks, 2018. "Estimating Market Power In Homogenous Product Markets Using A Composed Error Model: Application To The California Electricity Market," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1296-1321, April.
    19. Twomey, P. & Green, R. & Neuhoff, K. & Newbery, D., 2005. "A Review of the Monitoring of Market Power The Possible Roles of TSOs in Monitoring for Market Power Issues in Congested Transmission Systems," Cambridge Working Papers in Economics 0504, Faculty of Economics, University of Cambridge.
    20. Requate, Till, 2005. "Environmental Policy under Imperfect Competition: A Survey," Economics Working Papers 2005-12, Christian-Albrechts-University of Kiel, Department of Economics.

    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:nbr:nberwo:13511. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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.