Market power in a storable-good market : theory and applications to carbon and sulfur trading
Name
2005-016.pdf
Size
447.19 KB
Format
Adobe PDF
Checksum (MD5)
6abdac2bebf93fdda056182e92131836
Author(s)
Liski, Matti
Montero, Juan-Pablo
Date Issued
2005
Publisher
MIT Center for Energy and Environmental Policy Research
Series/Report no.
MIT-CEEPR (Series) ; 05-016WP.
Abstract
We consider a market for storable pollution permits in which a large agent and a fringe of small agents gradually consume a stock of permits until they reach a long-run emissions limit. The subgame-perfect equilibrium exhibits no market power unless the large agent's share of the initial stock of permits exceeds a critical level. We then apply our theoretical results to a global market for carbon dioxide emissions and the existing US market for sulfur dioxide emissions. We characterize competitive permit allocation profiles for the carbon market and find no evidence of market power in the sulfur market.
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