Strategic environmental policy and international market share rivalry under differentiated Bertrand oligopoly

Abstract

We analyse strategic environmental policies under international Bertrand oligopoly when firms in different industries, located in different countries, produce differentiated products. Under cooperation, emission prices always exceed the joint marginal damage from pollution. Under non-cooperation, internationally nontradable and tradable emission permit prices are always higher than the domestic marginal damage from emissions (the Pigovian tax); emission taxes can also exceed the Pigovian tax. The non-cooperative emission prices under all instruments can exceed the joint pollution damage. Internationally tradable permits generate outcomes closest to cooperation — they result in the lowest pollution and the highest welfare among all instruments under non-cooperation. Pollution is the highest and welfare the lowest with taxes. Our results provide support for allowing international trade in emission permits even when governments choose their permit levels non-cooperatively.

Strategic Export Motives and Linking Emission Markets

“…A natural extension to consider, and test the robustness of our main result, is to modify the conjectural variation on the market competition between the two …rms. Speci…cally, retaining our assumptions of symmetric countries, we conjecture that, in Stage 2, …rms in order to maximize their pro…ts, compete in prices, i.e., Bertrand competition, instead of quantities in commodity markets, e.g., Lapan and Sikdar (2020). As noted previously, the critical di¤erence between the present study and that of Lapan and Sikdar (2020) is in regard to the distribution of revenue from permits sales.…”

“…In a similar setup but in the presence of multiple pollutants Antoniou and Kyriakopoulou (2019) show that when the transboundary pollutant is regulated through a permits market then the incentives to relax further local regulation are magni…ed. Lapan and Sikdar (2020) show that when the exporting …rms compete over prices then the level of regulation is strengthened but still not at the e¢ cient level. Al Khourdajie and Finus (2020) introduce a strategic trade model and present the conditions under which border carbon adjustments can mitigate free-riding and reduce carbon leakage.…”

Modeling the Linkage between Vertical Contracts and Strategic Environmental Policy: Energy Price Marketization Level and Strategic Choice for China

“…Therefore, governments should take advantage of this by instituting strict emission quotas or higher emission taxes. Lapan and Sikdar [17] compare the impact of different environmental policy instruments on overall welfare. In a noncooperative equilibrium, the price of emission permits (both nontradable and tradable) always exceeds the domestic marginal damage caused by pollution.…”

“…In this paper, we develop a model to examine the link between the low price of energy and strategic environmental policy in China, examine the choice of policy instruments in a strategic environmental policy model with vertical contracts, and investigate different choices of instruments for the environmental policy. Extensions of our paper could include applying our approach to develop models for oil [27], CO 2 emissions [28], growth [29], price [30], international trade [13], environmental policy [14][15][16][17], and other policies [18].…”

Effects of Sustainable Regulations at Agricultural International Market Failures: A Dynamic Approach

“…However, most of these academic articles empirically explain the environmental trade impact but not necessarily the economic mechanism behind this evidence [14][15][16]. An exception is a work by Lapan and Sikdar [17], who developed a general theoretical model based on oligopoly, but with the potential to be applied to some agricultural commodities, according to the authors. Using this theoretical framework, the authors explored different environmental strategies to reduce emission in the context of international trade.…”