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Does environmental regulation create merger incentives?

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16-07.pdf (346.3Kb)
Date
2017
Dewey
Economie industrielle
Sujet
Mergers; Environmental externality; Tradable emission permits; Social welfare; Cournot competition
JEL code
L.L1.L13; L.L4.L41; Q.Q5.Q51
Journal issue
Energy Policy
Volume
105
Publication date
06-2017
Article pages
618-630
Publisher
Elsevier
DOI
http://dx.doi.org/10.1016/j.enpol.2017.01.057
URI
https://basepub.dauphine.fr/handle/123456789/19983
Collections
  • LEDa : Publications
Metadata
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Author
Creti, Anna
163511 Laboratoire d'Economie de Dauphine [LEDa]
Sanin, María-Eugenia
19169 Centre d'Etudes des Politiques Economiques [EPEE]
Type
Article accepté pour publication ou publié
Abstract (EN)
This paper studies merger incentives for polluting Cournot firms under a competitive tradable emission permits market. We find that when firms are symmetric and marginal costs are constant, an horizontal merger is welfare enhancing if efficiency gains are high enough for the merger to take place. The presence of a competitive (or monopolistic) outside market that also trades in the permits market makes profitable a merger that would not happen otherwise. When firms are vertically related in an input-output chain, an horizontal merger in one of the markets increases profits in the other market due to the permits price decrease. Finally we consider an oligopoly-fringe model in which firms differ in their marginal production costs. A merger between the dominant oligopolistic firms decreases the permits price and is always profitable. Such setting is relevant to assess the observed mergers between power generators in several market for permits, like the Regional Greenhouse Gas Initiative (RGGI), allowing us to derive some policy recommendations.

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