Market power in auction and efficiency in emission permits allocation.
This paper analyzes how to achieve the cost-effectiveness by initial allocation of CO2emission permits when a single dominant firm in production market has market power in auction, and compare two prevalent allocation patterns, mixed allocation and single auction. We show how the firm with market power may manipulate the auction price, thereby this leads to fail to achieve cost-effective solution by auction unless the total permits for allocation equal to the effective emissions cap. Provided that the market power firm receives strictly positive free permits, the effective emissions cap of mixed allocation is larger than that of single auction. The production market share of dominant firm is increasing with the free permits it holds. Finally, we examine the compliance costs and welfare of mixed allocation and single auction, the result show that the former is preferred to the later when policy makers consider economic welfare without welfare cost due to CO2emissions.
Institute of Industrial Economics, Jinan University, China. Electronic address: 18620857820@163.com.
Min Xing
MX
Jiang
Institute of Industrial Economics, Jinan University, China. Electronic address: ydx622@foxmail.com.
Dong Xiao
DX
Yang
Institute of Industrial Economics, Jinan University, China. Electronic address: czy_0077@126.com.
Zi Yue
ZY
Chen
Guangdong University of Finance & Economics, China. Electronic address: tpynie@jnu.edu.cn.
Pu Yan
PY
Nie
D000393:Air Pollutants / Q000032:analysis*; D002245:Carbon Dioxide / Q000032:analysis*; D003132:Commerce; D003362:Cost-Benefit Analysis; D052918:Environmental Restoration and Remediation / Q000379:methods*
D000393:Air Pollutants; D002245:Carbon Dioxide
Auction; CO(2); Emission permits allocation; Market power; Mixed allocation