Strategic Environmental Policy and International Market Share Rivalry under Differentiated Bertrand Oligopoly

Lapan, H; Sikdar, S

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.

Citation

Lapan, H., & Sikdar, S. (2020). Strategic Environmental Policy and International Market Share Rivalry under Differentiated Bertrand Oligopoly. Oxford Economic Papers, 215-235. https://doi.org/10.1093/oep/gpaa035

• Acceptance Date: Jun 29, 2020
• Publication Date: Dec 18, 2020
• Journal: Oxford Economic Papers
• Print ISSN: 0030-7653
• Publisher: Oxford University Press
• Pages: 215-235
• DOI: https://doi.org/10.1093/oep/gpaa035
• Keywords: Strategic environmental policy, differentiated products, transboundary pollution, public bad, tradable permits, leakage, Bertrand competition, profit-shifting, permit revenue, overregulation
• Publisher URL: https://doi.org/10.1093/oep/gpaa035