Free-Entry Cournot Oligopoly, Environmental Policies, and the Role of Public Enterprises in a Mixed Economy
Previous studies have noticed that environmental policy in a free-entry oligopolistic market crucially depends on the excess supply due to existence of external diseconomy, production decrease according to imperfect competition, and excessive entry into the industry. This paper examines the environmental policies and the sustainability of the industry in a free-entry Cournot-Nash oligopoly mixed market with welfare-maximizing public firms. Furthermore, we will investigate the effects of an emission abatement technology induction policy of the public firm. Our results show that the equilibrium level of production and the number of firms are smaller in the case of total emission tax than the proportional emission tax which suggests that the total emission tax alleviates the possible inefficiency of the free-entry oligopolistic market. Second, public production alleviates the inefficiency by increasing the output and decreasing the possible excess entry of private firms. Lastly, introduction of cleaner technology by the public firm may improve efficiency by inducing less production by firms with inferior production technology.
KeywordsFree entry Environmental tax Abatement technology Mixed economy
JEL ClassificationL12 H23 Q58
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