Oligopolies in pollution permit markets: A dynamic game approach

Research output: Contribution to journalArticle

13 Citations (Scopus)

Abstract

We reconsider the pollution permit concept in a setting extended to include dynamics, spatially diversified firms, and an oligopoly in product markets. The firms can manage their pollution emissions or stocks by (1) buying pollution permits and emitting pollution, (2) shipping pollutants to other nodes and paying such shipping costs, or (3) paying environmental costs to mitigate or recycle pollution. Firms manage these controls strategically to maximize net profits while facing non-cooperative rivals. Within this setting, we show that the non-cooperative competition among firms may be represented as a differential variational inequality (DVI) framework. Furthermore, we propose decision rules on permit purchase, establish necessary conditions, and prove the existence of solution in the formalism of the DVI. We also show that the DVI can be equivalently converted to a nonlinear complementarity problem (NCP), and show this problem, despite high dimensions, is efficiently solvable using off-the-shelf software (GAMS with the PATH solver). We illustrate this methods feasibility with a computationally intensive numerical example.

Original languageEnglish (US)
Pages (from-to)48-56
Number of pages9
JournalInternational Journal of Production Economics
Volume140
Issue number1
DOIs
StatePublished - Nov 1 2012

Fingerprint

Pollution
Freight transportation
Costs
Profitability
Oligopoly
Dynamic games
Pollution permits
Variational inequalities
Shipping
Formalism
Existence of solutions
Decision rules
Product market
Node
Profit
Nonlinear complementarity problem
Software
Diversified firms
Recycle
Purchase

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

Cite this

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Oligopolies in pollution permit markets : A dynamic game approach. / Chung, Sung H.; Weaver, Robert D.; Friesz, Terry Lee.

In: International Journal of Production Economics, Vol. 140, No. 1, 01.11.2012, p. 48-56.

Research output: Contribution to journalArticle

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