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Environmental taxation and mergers in oligopoly markets with product differentiation

Mahelet G. Fikru () and Luis Gautier ()
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Mahelet G. Fikru: Missouri University of Science and Technology
Luis Gautier: University of Texas at Tyler

Journal of Economics, 2017, vol. 122, issue 1, No 3, 45-65

Abstract: Abstract We analyze the effect of mergers on optimal environmental taxation in a Cournot oligopoly market with product differentiation. Our result indicates that the adjustment in emission tax crucially depends on the post-merger output distortion and pollution intensities. Specifically, we find that the optimal emission tax increases post-merger as long as pollution intensity of firms is higher and output distortion smaller post-merger than pre-merger. Furthermore, our result suggests that there is no need to revise environmental policy in markets where pollution intensity of firms does not change post-merger and (i) products are completely differentiated, or (ii) there are many firms for any degree of product differentiation.

Keywords: Emission tax; Output distortion; Mergers and acquisitions; Pollution intensity; End-of-the-pipe abatement; Carbon tax (search for similar items in EconPapers)
JEL-codes: Q5 G34 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s00712-017-0531-y

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