Pollution abatement and reservation prices in a market game

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

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 closed-loop 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 open-loop 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
• Language: English
• Keywords: Oligopoly Game; non-linear 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

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