Exclusionary manipulation of markets for pollution rights

Misiolek, Walter S.; Elder, Harold W.

doi:10.1016/0095-0696(89)90006-5

Cited by 200 publications

(111 citation statements)

References 22 publications

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“…Tietenberg (1985) admet la possibilité que les firmes puissent utiliser leur pouvoir dans le marché des permis pour diminuer les pressions concurrentielles dans le marché des produits sans toutefois en présenter un modèle explicite. Misiolek et Elder (1987) sont les premiers à avoir examiné le cas des entreprises qui utilisent leur pouvoir dans le marché des permis pour faire augmenter les coûts de leurs rivaux. Leur analyse s'inspire de la littérature sur les stratégies d'augmentation des coûts des concurrents (voir Salop et Scheffman, 1983 ainsi que Krattenmaker et .…”

Section: Introductionunclassified

Permis d’émission négociables et réglementation dans des marchés de concurrence imparfaite

Sartzetakis

2009

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Cette étude présente un duopole de Cournot soumis à une réglementation environnementale. Deux types d’approche sont étudiés : l’approche « ordre et contrôle » et les permis d’émission négociables. L’analyse démontre qu’un système de permis d’émission négociables est plus efficace que l’approche « ordre et contrôle » quand le marché des permis est concurrentiel, mais qu’il est moins efficace quand une des entreprises est capable de fixer le prix dans le marché des permis. Dans un duopole à la Cournot, l’entreprise capable de fixer le prix des permis cherche à faire augmenter les coûts de son concurrent afin d’augmenter sa part du marché des produits. Dans un système de permis d’émission négociables, l’État peut initialement vendre les permis aux enchères ou les distribuer sans frais (grandfathering). Il est démontré que lorsque le marché des permis est concurrentiel, les deux systèmes d’allocation initiale des permis sont efficaces, tandis que lorsqu’il y a pouvoir de marché, la vente aux enchères est plus efficace que la distribution gratuite des permis.This paper develops a model of a homogeneous Cournot duopoly subject to environmental regulation. Two systems of regulation are examined. A source-specific system (command and control) and a market-based system (tradeable emission permits). It is shown that tradeable emission permits are more efficient than command and control when the permit market is competitive but that it is less efficient when one of the duopolists is a price setter in the permit market. Under Cournot conjectures, the price setter in the permits market seeks to raise its rival's costs in order to increase its market share. Under a tradeable emission permits system, the government can either initially auction the permits or distribute them free of charge (grandfathering). It is shown that with a competitive permit market, both types of initial allocation are efficient. However, with a price setter in the permit market, auctioning is more efficient than grandfathering

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Section: Introductionunclassified

Permis d’émission négociables et réglementation dans des marchés de concurrence imparfaite

Sartzetakis

2009

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“…Importantly, this conclusion does not depend on explicit market power in both markets, as could perhaps be inferred from the analyses by Misiolek and Elder (1989), Disegni Eshel (2005) and Hintermann (2011). 6 The functional form in (12) and thus the underlying intuition is in fact identical to equation (6) in Hintermann (2011).…”

Section: Montero (2009)mentioning

confidence: 60%

“…But firms aim to maximize overall profits, not to minimize the compliance costs associated with an environmental regulation; if permit costs influence product markets, the latter therefore have to be taken into account. Misiolek and Elder (1989) show that if a dominant firm is able to manipulate both the input and output markets, Hahn's prescription of full allocation no longer applies. The dominant firm will generally buy more (or sell fewer) permits than in the case where it focuses on compliance costs alone, as this allows it to increase its market share and overall profits relative to the fringe.…”

Section: Introductionmentioning

confidence: 99%

Market Power in Emission Permit Markets: Theory and Evidence from the EU ETS

Hintermann

2015

Environ Resource Econ

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A well-known result about market power in emission permit markets is that efficiency can be achieved by full free allocation to the dominant firm. I show that this result breaks down when taking the interaction between input and output markets into account, even if the dominant firm perceives market power in the permit market alone. I then examine the empirical evidence for price manipulation by the ten largest electricity firms during phase I of the EU ETS. I find that firms' excess allowance holdings are consistent with strategic price manipulation, and that they cannot be explained by price speculation or by precautionary purchases to insure against uncertain future emissions. My results suggest that market power is likely to be an empirically relevant concern during the early years of emission permit markets.JEL codes H23, H32; Q52, Q53, Q54, Q58.

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“…This changes the role of permits allocation even in the case of asymmetric Cournot competition: giving to the most e¢ cient agent (or we could say the "dominant " …rm in the output market) the exact amount of permits needed for production does not change the price of permits (or unit cost of input) 10 . Then, in our model the value of has no e¢ ciency implications.…”

Section: Propositionmentioning

confidence: 99%

Environmental Innovation under Cournot Competition

Sanin

Zanaj

2007

SSRN Journal

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In this paper, we address the incentives to invest in environmental innovation of enterprises that exercise market power in the output market and also buy and sell pollution permits. Differently from the existing literature, using a market approach we explicitly model the interaction between the output market, where firms play à la Cournot, and the permits market. We find that, in the new equilibrium firms behave symmetrically, that is, they either both innovate to protect their market share in the output market or they both choose not to innovate. Whether the innovation equilibrium arises or not depends on the output demand and on the productivity enhancement and not on the distribution of permits among firms. Finally, we show that, under this market configuration, collusion can be welfare enhancing.

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Exclusionary manipulation of markets for pollution rights

Cited by 200 publications

References 22 publications

Permis d’émission négociables et réglementation dans des marchés de concurrence imparfaite

Permis d’émission négociables et réglementation dans des marchés de concurrence imparfaite

Market Power in Emission Permit Markets: Theory and Evidence from the EU ETS

Environmental Innovation under Cournot Competition

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