Market power in an exhaustible resource market: The case of storable pollution permits

Matti Liski () and Juan-Pablo Montero

No 329, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: Motivated by the structure of existing pollution permit markets, we study the equilibrium path that results from allocating an initial stock of storable permits to a large polluting agent and a competitive fringe. A large agent selling permits in the market exercises market power no differently than a large supplier of an exhaustible resource. However, whenever the large agent's endowment falls short of its efficient endowment –allocation profile that would exactly cover its emissions along the perfectly competitive path– the market power problem disappears, much like in a durable-good monopoly. We illustrate our theory with two applications: the carbon market that may eventually develop under the Kyoto Protocol and beyond and the US sulfur market.

Keywords: Exhaustible resources; market power; pollution markets; durable-good monopoly (search for similar items in EconPapers)
JEL-codes: L51 Q28 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-com, nep-ene and nep-env
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Market Power in an Exhaustible Resource Market: The Case of Storable Pollution Permits (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:329

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