Incentives for Price Manipulation in Emission Permit Markets with Stackelberg Competition

Arbeitspapier

It has been shown in prior research that cost effectiveness in the competitive emissions permit market could be affected by tacit collusion or price manipulation when the corresponding polluting product market is oligopolistic. We analyze these cross market links using a Stackelberg model to show that under reasonable assumptions, there are no incentives to collude for lobbying prices up. However, incentives for manipulating the price of permits up appear if there is an initial free allocation of permits, which is a policy argument against grandfathering and in favor of auctioning. This effect is increasing with the amount of permits allocated to the leader. Moreover, the changes for price manipulation increase with those changes that tend to undermine the leader's advantage in output production or to reduce the leader's abatement cost.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 6.2015

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Oligopoly and Other Imperfect Markets ; Environmental Economics: Government Policy
• Subject: Emissions Permits ; Collusion ; Market Power ; Duopoly ; Stackelberg Model

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): André, Francisco J. ; de Castro, Luis M.
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/107757
• Last update: 10.03.2025, 11:42 AM CET