Strategic Behavior and the Environment > Vol 2 > Issue 3

Duopolists in Output and Permit Markets: Interaction and Regulation

Pauli Lappi, University of Helsinki, pauli.lappi@helsinki.fi
 
Suggested Citation
Pauli Lappi (2012), "Duopolists in Output and Permit Markets: Interaction and Regulation", Strategic Behavior and the Environment: Vol. 2: No. 3, pp 279-293. http://dx.doi.org/10.1561/102.00000018

Published: 18 Sep 2012
© 2012 P. Lappi
 
Subjects
Trade,  Competition,  Regulations
 
Keywords
Q50L13L50
Cournot duopolyEmission tradingImperfect competitionRegulationStrategic interaction
 

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In this article:
Introduction
Strategic Interaction in the Duopoly Model
Regulation
Conclusions
Appendix
References

Abstract

This paper studies the interaction between and the regulation of duopolists in imperfect permit and output markets. The interaction is modeled with a two-stage game in which the permit holding decision is made after the output decision. In the case of dominant buyer this results in a larger total output compared to the output level when the permit markets are perfect but the output market is imperfect. The opposite result holds for dominant sellers. In addition, the second-best regulation is characterized. It is shown that subsidies for permit buying and taxes for permit selling can be used as instruments to increase efficiency in both markets.

DOI:10.1561/102.00000018