Market Power, Innovation, and the Green Transition

Rik Rozendaal

No 11938, CESifo Working Paper Series from CESifo

Abstract: This paper studies the relationship between climate policy, market power and innovation. Using data on patenting and firms' balance sheets, I document that firms with a higher degree of market power are, on average, more invested in dirty technologies than their direct competitors. I then develop a model of directed technical change with strategic innovation incentives, incorporating the empirical evidence. A carbon tax affects market power and both the intensity and the direction of innovation. In the calibrated model, a carbon tax lowers aggregate markups and increases clean innovation while also increasing dirty innovation by some firms.

Keywords: climate policy; market power; innovation; directed technical change (search for similar items in EconPapers)
JEL-codes: O30 O44 Q55 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11938

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