COMPETITIVE PERMIT MARKETS AND VERTICAL STRUCTURES: The Relevance of Imperfect Competitive Eco-Industries
نویسندگان
چکیده
Permit markets lead polluting rms to purchase abatement goods from an eco-industry, which is often concentrated. This paper studies the consequences of imperfect competition in an ecoindustry on the equilibrium choices of the competitive polluting rms. It then characterizes the second best pollution cap. By comparing this situation to a competitive one, we show that Cournot competition on the abatement good market contributes not only to a non optimal 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 non competitive rms and suggest a second best less stringent pollution cap.
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