| In theory, competitive emission permit markets minimise total abatement cost for any emission ceiling. Permit markets are often imperfectly competitive, however, if they are thin and dominated by large firms. The dominant firm(s) could exercise market power and increase other firms’ costs of pollution control, while reducing their own emission control costs. This paper reports a testbed laboratory experiment to examine whether a dominant firm can exercise market power in a permit market organised using the double auction trading institution. Our parameters approximate the abatement costs of sources in a proposed tradable emissions market for the reduction of nitrogen in the Port Phillip Watershed in Victoria, Australia. We vary across treatments the... |
