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DO OLIGOPOLISTS POLLUTE LESS? EVIDENCE FROM A RESTRUCTURED ELECTRICITY MARKET*

Erin Mansur

Journal of Industrial Economics, 2007, vol. 55, issue 4, 661-689

Abstract: Electricity restructuring has created the opportunity for producers to exercise market power. Oligopolists increase price by distorting output decisions, causing cross‐firm production inefficiencies. This study estimates the environmental implications of production inefficiencies attributed to market power in the Pennsylvania, New Jersey, and Maryland electricity market. Air pollution fell substantially during 1999, the year in which both electricity restructuring and new environmental regulation took effect. I find that strategic firms reduced their emissions by approximately 20% relative to other firms and their own historic emissions. Next, I compare observed behavior with estimates of production, and therefore emissions, in a competitive market. According to a model of competitive behavior, changing costs explain approximately two‐thirds of the observed pollution reductions. The remaining third can be attributed to firms exercising market power.

Date: 2007
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Citations: View citations in EconPapers (22)

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https://doi.org/10.1111/j.1467-6451.2007.00325.x

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Working Paper: Do Oligopolists Pollute Less? Evidence from a Restructured Electricity Market (2007) Downloads
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Journal of Industrial Economics is currently edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven

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