Green Technology Transitions with an Endogenous Market Structure

Anton Bondarev (), Prudence Dato and Frank Krysiak ()

Working papers from Faculty of Business and Economics - University of Basel

Abstract: The transition to a green technology is central to environmental policy. During such a transition, technology and market structure often change simultaneously, as firms developing the new technology enter the market of incumbents supplying the old one. This leads to the questions how technological change and market changes interact and at which stage of the technology transition incumbents or newcomers are more likely to drive the technology transition. We advance a model that describes this co-evolution of technology and market. Our results show that this co-evolution induces substantial market failures. The transition might be blocked by an incumbent protecting the old technology and, even if it is not, emissions decline less rapidly than in the social optimum. Furthermore, incentives change during the transition: At the beginning, entrants can be crucial to start the transition, but, later on, the incumbent will usually become the driving force. When this switch occurs depends on the propensity of the new technology to attract new customers and on the possible speed of technological development. Our results have implications for environmental policy, as they indicate that supporting small new- comers might be desirable at the beginning but can be detrimental at later stages of a technology transition.

Keywords: Green Technology; Innovation; Imperfect Competition; Endogenous Market Structure; Technology Transition; Emissions; Climate Change (search for similar items in EconPapers)
JEL-codes: C60 L10 O31 Q54 Q55 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-com, nep-ene, nep-env, nep-reg and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bsl:wpaper:2021/07

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