Frontiers in Management Research

Download PDF (313.5 KB) PP. 85 - 95 Pub. Date: July 19, 2017

DOI: 10.22606/fmr.2017.13001

• Luciano Fanti
  Department of Economics and Management, University of Pisa, Italy
• Domenico Buccella^*
  Department of Economics, Kozminski University in Warsaw, Poland

This paper investigates the effects of public environmental policies on the market structure in a Cournot context. It is shown that when the Government fixes upper limits to emissions, higher environmental social concerns favour entry of a firm. On the other hand, the abatement technology may act as a barrier or an incentive to entry depending on the government’s environmental sensitiveness; however, a more efficient technology tends to disfavour entry. In addition, if the size of the fixed costs is relatively high, the duopoly market structure will lead to social welfare level lower than in the presence of monopoly. On the other hand, an improvement of the efficiency of the abatement technology may, in the presence of a low social interest for controlling pollution, play the role of a barrier to entry. The empirical and policy implications of these results are discussed.

Environmental policies; entry; cournot; endogenous market structure

[1] J.C. Bárcena Ruiz, and M. B. Garzón San Felipe, “Mixed Oligopoly and Environmental Policy”, Spanish Economic Review, vol. 8, no. 2, pp. 139-160, 2006.

[2] A.H. Barnett, “The Pigouvian Tax Rule under Monopoly”, The American Economic Review, vol. 70, pp. 1037 — 1041, 1980.

[3] W.J. Baumol, and E.N. Oates, The Theory of Environmental Policy. Cambridge: Cambridge University Press, 1988.

[4] D. Besanko, “Performance Standards versus Design Standards in the Regulation of Pollution”, Journal of Public Economics, vol. 34, pp. 19-44, 1987.

[5] D. Buccella, and L. Fanti, “Entry in a Network Industry with a “Capacity-Then-Production” Choice”, Seoul Journal of Economics, vol. 29, no. 3, pp. 411-429, 2016.

[6] J. Church, and R. Ware, Industrial Organization: A Strategic Approach. Boston, MA: Irwin McGraw-Hill, 1999.

[7] B. Copeland, “Taxes versus Standards to Control Pollution in Imperfectly Competitive Markets”, mimeo, University of British Columbia, 1991.

[8] A. Dixit, “The role of investment in entry-deterrence”, The Economic Journal, vol. 90, no. 357, pp. 95-106, 1980.

[9] U. Ebert, “Pigouvian Taxes and Market Structure: The Case of Oligopoly and Different Abatement Technologies”, Finanzarchiv, vol. 49, pp. 154—166, 1992.

[10] European Environment Agency, Environmental taxes: recent developments in tools for integration. Environmental Issues Series, No. 18, 2000.

[11] I. Falk, and R. Mendelson, “The economics of controlling stock pollutants: An efficient strategy for greenhouse gases”, Journal of Environmental Economics and Management, vol. 25, pp. 75-88, 1993.

[12] L. Fanti, “Environmental Standards and Cournot Duopoly: A Stability Analysis”, Environmental and Resource Economics, vol. 61, no. 4, pp. 577-593, 2015.

[13] G. Helfand, “Standards versus Standards: The Effects of Different Pollution Restrictions”, The American Economic Review, vol. 81, no. 3, pp. 622-634, 1991.

[14] R. Innes, C. Kling, and J. Rubin, ”Emission Permits under Monopoly”, Natural Resource Modelling, vol. 8, pp. 321-343, 1991.

[15] R.S. Khemani, and D.M. Shapiro, “Glossary of Industrial Organisation Economics and Competition Law”. Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.

[16] D. Levin, “Taxation within Cournot Oligopoly”, Journal of Public Economics, vol. 27, pp. 281—290, 1985.

[17] R.P. McAfee, H.M. Mialon, and M.A. Williams, “What is barrier to entry?”, The American Economic Review, vol. 94, no. 2, pp. 461-465, 2004.

[18] W.E. Oates, and D.L. Strassmann, “Effluent Fees and Market Structure”, Journal of Public Economics, vol. 24, pp. 29-46, 1984.

[19] T. Requate, “Equivalence of Effluent Taxes and Permits for Environmental Regulation of Several Local Monopolies”, Economics Letters, vol. 42, pp. 91—95, 1993.

[20] T. Requate, Environmental policy under imperfect competition. In: Tietenberg, T., Folmer, H. (Eds.), The International Yearbook of Environmental and Resource Economics 2006/2007. A Survey of Current Issues. Edward Elgar, 2006.

[21] Royal Commission on Environmental Pollution (RCEP), Environmental Standards and Public Values. A Summary of the Twenty-first Report of the Royal Commission on Environmental Pollution. The Stationery Office, London, 1998.

[22] O. Shy, Industrial Organization: Theory and Application. MIT Press, Cambridge, MA, 1995.

[23] D. Simpson, “Optimal Pollution Taxation in a Cournot Duopoly”, Environmental and Resource Economics, vol.6, pp. 359-369, 1995.

[24] A.M. Spence, “Entry, capacity, investment and oligopolistic pricing”, The Bell Journal of Economics, vol. 8, no. 2, pp. 534-544, 1977.

[25] D.F. Spulber, “Effluent Regulation and Long-run Optimality”, Journal of Environmental Economics and Management, vol. 12, pp. 103-116, 1985.

[26] J.E. Stiglitz, Introduction. In New Developments in the Theory of Market Structure. J. E. Stiglitz and F. Mathewson (eds.). The MIT Press. Cambridge, Massachusetts, 1986.

[27] A. Ulph, “The Choice of Environmental Policy Instruments and Strategic International Trade”. In Conflict and Cooperation in Managing Environmental Resources. R. Pethig (ed.). Springer-Verlag, Berlin, 1992.

[28] A. Ulph, “Environmental Policy and International Trade: A Survey of Recent Economic Analysis”, Nota di Lavoro, vol. 53.94., 1994.

[29] A. Ulph, “Environmental policy and international trade when governments and producers act strategically”, Journal of Environmental Economics Management, vol. 30, pp. 256–281, 1996.

[30] F. van der Ploeg, and A.J. de Zeeuw, “International aspects of pollution control”, Environmental and Resource Economics, vol. 2, pp. 117-139, 1992.