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Imperfect competition, sequential auctions, and emissions trading: An experimental evaluation

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Abstract

This paper reports an experiment that studies the behavior of a monopolist on sequential auction markets for tradable permits. Using six sessions in a triple ABA crossover design, we investigate the cost-effectiveness of permit allocations and the division of trade gains on sequential bid, offer, and double auction markets. The main result is that cost-effectiveness and supra-competitive profits accrued by the monopolist are observed on all the three auction markets.

Suggested Citation

  • Morten Søberg, 2000. "Imperfect competition, sequential auctions, and emissions trading: An experimental evaluation," Discussion Papers 280, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:280
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp280.pdf
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    References listed on IDEAS

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    1. Ledyard, John O. & Szakaly-Moore, Kristin, 1994. "Designing organizations for trading pollution rights," Journal of Economic Behavior & Organization, Elsevier, vol. 25(2), pages 167-196, October.
    2. Jamison, Julian C. & Plott, Charles R., 1997. "Costly offers and the equilibration properties of the multiple unit double auction under conditions of unpredictable shifts of demand and supply," Journal of Economic Behavior & Organization, Elsevier, vol. 32(4), pages 591-612, April.
    3. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    4. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    5. Stavins, Robert, 2004. "Environmental Economics," Discussion Papers dp-04-54, Resources For the Future.
    6. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
    7. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-685, September.
    8. Cason, Timothy N & Gangadharan, Lata, 1998. "An Experimental Study of Electronic Bulletin Board Trading for Emission Permits," Journal of Regulatory Economics, Springer, vol. 14(1), pages 55-73, July.
    9. Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-189, March.
    10. Joyce, Patrick, 1983. "Information and behavior in experimental markets," Journal of Economic Behavior & Organization, Elsevier, vol. 4(4), pages 411-424, December.
    11. Tietenberg, T H, 1990. "Economic Instruments for Environmental Regulation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(1), pages 17-33, Spring.
    12. R. Andrew Muller & Stuart Mestelman & John Spraggon & Rob Godby, 1999. "Can auctions control market power in emissions trading markets," Department of Economics Working Papers 1999-12, McMaster University.
    13. Robert N. Stavins, 1998. "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 69-88, Summer.
    14. Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 753-765.
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    Cited by:

    1. Cason, Timothy N. & Gangadharan, Lata & Duke, Charlotte, 2003. "Market power in tradable emission markets: a laboratory testbed for emission trading in Port Phillip Bay, Victoria," Ecological Economics, Elsevier, vol. 46(3), pages 469-491, October.

    More about this item

    Keywords

    Market power; tradable permits; and experimental economics.;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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