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Environmental Policy to Foster a Green Differentiated Energy Market

Author

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  • Gutierrez-Hita, Carlos
  • Martinez-Sanchez, Francisco

Abstract

Many products are made by technological processes that cause environmental damage. Current environmental concerns are affecting firms' technological processes as a result of government intervention in markets but also due to environmental awareness on the part of consumers. This paper assumes a spatial competition model where two firms sell a homogeneous product with input differentiation: the product is made by green and polluting inputs. In a two-stage game firms first decide what technology bundle to use (the ratio of green and polluting inputs) and then Bertrand competition takes place. First, it is shown that in the absence of government intervention both firms prefer to produce by using a bundle of green and polluting technologies which is not welfare maximizing. Second, the option of subsidizing green technology and the existence of a publicly-owned firm are analyzed. Overall, both policies yield a more environmentally-friendly technology bundle, except when costs of green energy technologies are high enough. Moreover, environmental social welfare is enhanced.

Suggested Citation

  • Gutierrez-Hita, Carlos & Martinez-Sanchez, Francisco, 2013. "Environmental Policy to Foster a Green Differentiated Energy Market," MPRA Paper 47263, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:47263
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    File URL: https://mpra.ub.uni-muenchen.de/47263/1/MPRA_paper_47263.pdf
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    References listed on IDEAS

    as
    1. Yasuo Sanjo, 2009. "Bertrand Competition In A Mixed Duopoly Market," Manchester School, University of Manchester, vol. 77(3), pages 373-397, June.
    2. Klaus Conrad, 2005. "Price Competition and Product Differentiation When Consumers Care for the Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(1), pages 1-19, May.
    3. Macho-Stadler, Ines & Perez-Castrillo, David, 2006. "Optimal enforcement policy and firms' emissions and compliance with environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 51(1), pages 110-131, January.
    4. Cremer, Helmuth & Marchand, Maurice & Thisse, Jacques-Francois, 1989. "The Public Firm as an Instrument for Regulating an Oligopolistic Market," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 283-301, April.
    5. Juan Bárcena-Ruiz & María Garzón, 2006. "Mixed Oligopoly and Environmental Policy," Spanish Economic Review, Springer;Spanish Economic Association, vol. 8(2), pages 139-160, June.
    6. Cremer, Helmuth & Thisse, Jacques-Francois, 1999. "On the taxation of polluting products in a differentiated industry," European Economic Review, Elsevier, vol. 43(3), pages 575-594, March.
    7. Inés Macho-Stadler, 2008. "Environmental regulation: choice of instruments under imperfect compliance," Spanish Economic Review, Springer;Spanish Economic Association, vol. 10(1), pages 1-21, March.
    8. Cremer, Helmuth & Marchand, Maurice & Thisse, Jacques-Francois, 1991. "Mixed oligopoly with differentiated products," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 43-53, March.
    9. Kurtyka, Oliwia & Mahenc, Philippe, 2011. "The switching effect of environmental taxation within Bertrand differentiated duopoly," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 267-277, September.
    10. Francisco Martínez‐Sánchez, 2011. "Bertrand Competition In A Mixed Duopoly Market: A Note," Manchester School, University of Manchester, vol. 79(6), pages 1058-1060, December.
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    12. Eriksson, Clas, 2004. "Can green consumerism replace environmental regulation?--a differentiated-products example," Resource and Energy Economics, Elsevier, vol. 26(3), pages 281-293, September.
    13. Isamu Matsukawa, 2012. "The Welfare Effects of Environmental Taxation on a Green Market Where Consumers Emit a Pollutant," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(1), pages 87-107, May.
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    More about this item

    Keywords

    Differentiated inputs · Environmental policy · Green market · Mixed duopoly · Subsidy;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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