Competitive permit markets and vertical structures: the relevance of imperfectly competitive eco-industries
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2014
- handle: 10670/1.9f5cpu
- halshs: halshs-00926472
- doi: 10.1111/jpet.12048
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info:eu-repo/semantics/altIdentifier/doi/10.1111/jpet.12048
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Sonia Schwartz et al., « Competitive permit markets and vertical structures: the relevance of imperfectly competitive eco-industries », HAL-SHS : économie et finance, ID : 10.1111/jpet.12048
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Résumé
Permit markets lead polluting firms to purchase abatement goods from an eco-industry which is often concentrated. This paper studies the consequences of this sort of imperfectly competitive eco-industry on the equilibrium choices of the competitive polluting firms. It then characterizes the second-best pollution cap. By comparing this situation to one of perfect competition, we show that Cournot competition on the abatement good market contributes not only to a nonoptimal level of emission reduction but also to a higher permit price, which reduces the production level. These distortions increase with market power, measured by the margin taken by the noncompetitive firms, and suggest a second-best larger pollution cap.