A strong and relevant article I’ve been mulling over these days:
Oligopoly meets oligopsony: The case of permitsAbstract
This paper derives market equilibria (in demand functions and in bidding strategies) between oligopolists and oligopsonists in a market with intermediates and no competition in final markets. To the best of my knowledge, this theme has not been explored, despite two observations: Firstly, the commonly applied framework of non-competitive and competitive fringe firms has implausible properties for the limit of purely strategic players. Secondly, real world cases correspond at least potentially to such strategic interactions, e.g., non-competitive players selling and buying permits (CO2 and SO2). The major implications are that these non-competitive markets are characterized by a kind of double marginalization (on the demand and the supply side) resulting in too little trade and wrong price signals.
Article available here.
What the author demonstrates mathematically is that markets for ecosystem services, because they are characterized by a very small number of very large players, don’t comply with the competitive market hypothesis – meaning the traded volumes are too small and the prices achieved can either be too low (meaning too much pollution will be emitted) or too high (meaning a sub-optimal level of pollution).
This problem is ever more important when we consider markets, such as biodiversity offsets, where the benefits are not fungible, that is, they are mostly felt on the spot or close by. If the efficiency conditions are not respected, the results are suboptimal – why would we have markets then?
Punchline: markets can work, but what are the appropriate market designs, players and regulations?
No comments:
Post a Comment