Halkos, George and Papageorgiou, George (2012): Pollution abatement and reservation prices in a market game.

PDF
MPRA_paper_42150.pdf Download (245kB)  Preview 
Abstract
In this paper we set up an oligopolistic market model, where firms invest in pollution abatement in order to increase the whole market size via an increase in the consumers’ reservation price. Moreover, we suppose that the demand function is not a linear one and the resulting game is not a usual linear quadratic one. In the considered model we investigate the open loop, the memory less closedloop and the collusive patterns equilibrium. Additionally, we examine the social planning perspective. In the case of a convex demand we found the surprising result that the control and state variables have higher values in the openloop steady state equilibrium than in the closed loop, while in a linear demand case the equilibrium is undetermined. In all cases we find that only if the market demand has concave curvature are the conclusions clear. A number of propositions and remarks are provided.
Item Type:  MPRA Paper 

Original Title:  Pollution abatement and reservation prices in a market game 
Language:  English 
Keywords:  Oligopoly Game; nonlinear demand; pollution abatement; reservation price 
Subjects:  Q  Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5  Environmental Economics > Q52  Pollution Control Adoption and Costs ; Distributional Effects ; Employment Effects C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61  Optimization Techniques ; Programming Models ; Dynamic Analysis D  Microeconomics > D4  Market Structure, Pricing, and Design > D43  Oligopoly and Other Forms of Market Imperfection C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62  Existence and Stability Conditions of Equilibrium Q  Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5  Environmental Economics > Q58  Government Policy 
Item ID:  42150 
Depositing User:  G.E. Halkos 
Date Deposited:  23. Oct 2012 19:15 
Last Modified:  10. May 2015 02:55 
References:  Anderson, S.P. and Engers M. (1992). Stackelberg vs Cournot Oligopoly Equilibrium. International Journal of Industrial Organization, 10: 127 – 135. Anderson, S.P. and Engers M. (1994), Strategic Investment and Timing of Entry. International Economic Review, 35: 833 – 53. Basar T. and Olsder G. J. (1995). Dynamic Noncooperative Game Theory, 2nd Edition, San Diego, Academic Press. Benchekroun, H. and Long, N.V. (1997). Efficiency Inducing Taxation for Polluting Oligopolists, Cirano 97s – 21 Bylka S., Ambroszkiewicz S. and Komar, J. (2000). Discrete Time dynamic game model for price competition in an oligopoly, Annals of Operations Research, 97: 69 – 89. Celini, R. and Lambertini, L. (2001). Advertising in a Differential Oligopoly Game, working paper, Dipartmento di Scienze Economiche, Universita di Bologna. Clemhout, S. and Wan, H.Y. (1974). A class of trilinear differential games, Journal of Optimization Theory and Applications, 14: 419–424. Coase, R. (1960). The problem of social cost, Journal of Law and Economics, 3: 144. Dockner, E.J., Jorgensen, S., Long, N.V. and Sorger, G. (2000). Differential Games in Economics and Management Science, Cambridge, Cambridge University Press. Dockner, E.J., Feichtinger, G. and Jorgensen, S. (1985). Tractable classes of non–zero sum open–loop Nash differential games: Theory and examples, Journal of Optimization Theory and Applications, 45: 179 – 197. Forster, B. (1980). Optimal Energy Use in a Polluted Environment, Journal of Environmental Economics and Management, 7(4): 321333. Giridharan, P.S. (1997). Strategic joint ventures in informational technology, Annals of Operations Research, 71: 143 – 175. Halkos, G.E. (1993). Sulphur abatement policy: Implications of cost differentials, Energy Policy, 21(10): 10351043. Halkos, G.E. (1994). Optimal abatement of sulphur emissions in Europe, Environmental & Resource Economics, 4(2): 127150. Halkos, G. E. (1996). Incomplete information in the acid rain game, Empirica, 23(2): 129148. Halkos, G.E. and Papageorgiou, G.J. (2012). Pollution Control Policy: A Dynamic Taxation Scheme, Czech Economic Review, 6(1): 1437. Huck, S., Normann, H.T. and Oechssler, J. (2002). Stability in the Cournot process: experimental evidence, International Journal of Game Theory, 31: 123 – 136. Katsoulacos, Y. and Xepapadeas, A. (1992). Pigouvian taxes under Oligopoly, Typescript, Athens University. Kennedy, P. (1994). Equilibrium pollution taxes in open economies with imperfect competition, Journal of Environmental Economics and Management, 27: 49 – 63. Leonard, D. and Nishimura, K. (1999). Nonlinear Dynamics in the Cournot model without full information, Annals of Operations Research, 89: 165 – 173. Mehlmann, A. and Willing, R. (1983). On nonunique closedloopNash equilibria for a class of differential games with a unique and degenerate feedback solution, Journal of Optimization Theory and Applications, 41: 463 – 472. Nagurney, A. and Dhanda, K.K. (2000). Noncompliant oligopolistic firms and marketable pollution permits: Statics and dynamics, Annals of Operations Research, 95: 285– 312. Naimzada, A. and Sbragia, L. (2006). Oligopoly games with nonlinear demand and cost functions: Two boundedly rational adjustment processes, Chaos Solitons & Fractals, 29(3): 707722. Pigou, A.C. (1920). The economics of welfare. MacMillan. Reinganum, J. (1982). A class of differential games for which the closedloopand openloopNash equilibria coincide, Journal of Optimization Theory and Applications, 36: 253–262. Seirstad, A. and Sydsaeter, K. (1987). Optimal Control Theory with Economic Applications, North – Holland. Varian, R.H. (1992). Microeconomic Analysis, 3rd Edition, Norton. 
URI:  http://mpra.ub.unimuenchen.de/id/eprint/42150 