IDEAS home Printed from https://ideas.repec.org/a/kap/enreec/v87y2024i6d10.1007_s10640-024-00845-2.html
   My bibliography  Save this article

The Design of Emission Taxes in Markets with New Firm Acquisitions

Author

Listed:
  • Luis Gautier

    (University of Texas at Tyler
    Universidad de Málaga)

  • Mahelet G. Fikru

    (Missouri University of Science and Technology)

Abstract

In the 1990s there was a great deal of interest in the study of the role of endogenous market structure under oligopoly in the characterization of emission taxes. This interest was instrumental in providing policy guidance on the design of emission taxes based on market characteristics. However, the literature has been silent on offering policy recommendations on the design of emission taxes under endogenous market structure in the presence of new firm acquisitions. We build a model where new firms enter the market where some are acquired by an incumbent multi-plant firm, altering the initial market structure. In this framework, we characterize the second-best emission tax and examine the role of the resulting market structure, in particular the role of acquiring more/fewer of the new firms, in the optimal design of emission tax. We argue that, under certain conditions, the acquisition of new firms may lead to higher taxation consistent with the Pigouvian rule or even exceed marginal damages. Our contribution is at the intersection of emission tax design and M &A (new firm acquisition) literature.

Suggested Citation

  • Luis Gautier & Mahelet G. Fikru, 2024. "The Design of Emission Taxes in Markets with New Firm Acquisitions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(6), pages 1371-1388, June.
    • Handle: RePEc:kap:enreec:v:87:y:2024:i:6:d:10.1007_s10640-024-00845-2
    DOI: 10.1007/s10640-024-00845-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10640-024-00845-2
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10640-024-00845-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Spector, David, 2003. "Horizontal mergers, entry, and efficiency defences," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1591-1600, December.
    2. Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    4. Tina Kao & Flavio Menezes, 2010. "Welfare‐Enhancing Mergers Under Product Differentiation," Manchester School, University of Manchester, vol. 78(4), pages 290-301, July.
    5. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    6. Qiu, Larry D. & Zhou, Wen, 2006. "International mergers: Incentives and welfare," Journal of International Economics, Elsevier, vol. 68(1), pages 38-58, January.
    7. Lee, Sang-Ho, 1999. "Optimal Taxation for Polluting Oligopolists with Endogenous Market Structure," Journal of Regulatory Economics, Springer, vol. 15(3), pages 293-308, May.
    8. Cabral, Luis M. B., 2003. "Horizontal mergers with free-entry: why cost efficiencies may be a weak defense and asset sales a poor remedy," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 607-623, May.
    9. Nisvan Erkal & Daniel Piccinin, 2010. "Welfare‐Reducing Mergers in Differentiated Oligopolies with Free Entry," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 178-184, June.
    10. B. Rajesh Kumar, 2012. "Mergers and Acquisitions in the Energy Sector," Palgrave Macmillan Books, in: Mega Mergers and Acquisitions, chapter 6, pages 166-180, Palgrave Macmillan.
    11. Roger Blair & Jessica Haynes, 2011. "The Efficiencies Defense in the 2010 Horizontal Merger Guidelines," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 39(1), pages 57-68, August.
    12. Toshihiro Matsumura & Yasunori Okumura, 2014. "Comparison between specific taxation and volume quotas in a free entry Cournot oligopoly," Journal of Economics, Springer, vol. 113(2), pages 125-132, October.
    13. J. Alejandro Gelves, 2014. "Differentiation and Cost Asymmetry: Solving the Merger Paradox," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 21(3), pages 321-340, November.
    14. Ohsung Kwon & Sangmin Lim & Duk Hee Lee, 2018. "Acquiring startups in the energy sector: a study of firm value and environmental policy," Business Strategy and the Environment, Wiley Blackwell, vol. 27(8), pages 1376-1384, December.
    15. Volker Nocke & Michael D. Whinston, 2013. "Merger Policy with Merger Choice," American Economic Review, American Economic Association, vol. 103(2), pages 1006-1033, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luis Gautier & Mahelet G. Fikru, 2024. "Welfare Impact of New Firm Acquisition," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 105-132, Springer.
    2. Luis Gautier & Mahelet G. Fikru, 2024. "Are Big Mergers Welfare Enhancing When There Is Environmental Externality?," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 145-173, Springer.
    3. Luis Gautier & Mahelet G. Fikru, 2024. "Mergers in Cournot Markets with Environmental Externality and Product Differentiation," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 21-46, Springer.
    4. Nisvan Erkal & Daniel Piccinin, 2010. "Welfare‐Reducing Mergers in Differentiated Oligopolies with Free Entry," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 178-184, June.
    5. Cristina Pardo-Garcia & Jose Sempere-Monerris, 2015. "Equilibrium mergers in a composite good industry with efficiencies," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(1), pages 101-127, March.
    6. Ana Espínola-Arredondo & Felix Munoz-Garcia & Ae Rin Jung, 2020. "Organic Mergers and Acquisitions," Journal of Industry, Competition and Trade, Springer, vol. 20(1), pages 59-91, March.
    7. Mehdi Arzandeh & Hikmet Gunay, 2023. "Tariffs, R&D, and two merger policies," Review of International Economics, Wiley Blackwell, vol. 31(1), pages 81-105, February.
    8. Ralph Siebert, 2016. "The Impact of Horizontal Mergers on Market Structure: Evidence from the Semiconductor Industry," CESifo Working Paper Series 5911, CESifo.
    9. Simon Loertscher & Leslie M. Marx, 2021. "Coordinated Effects in Merger Review," Journal of Law and Economics, University of Chicago Press, vol. 64(4), pages 705-744.
    10. Ralph B. Siebert, 2019. "Estimating Differential Dynamic Merger Effects on Market Structure and Entry in Related Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(3), pages 431-458, November.
    11. John S. Heywood & Matthew McGinty, 2008. "Leading and Merging: Convex Costs, Stackelberg, and the Merger Paradox," Southern Economic Journal, John Wiley & Sons, vol. 74(3), pages 879-893, January.
    12. Kai Hüschelrath & Kathrin Müller, 2015. "Market Power, Efficiencies, and Entry Evidence from an Airline Merger," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 36(4), pages 239-255, June.
    13. Cosnita-Langlais Andreea & Sørgard Lars, 2018. "Enforcement and Deterrence in Merger Control: The Case of Merger Remedies," Review of Law & Economics, De Gruyter, vol. 14(3), pages 1-22, November.
    14. Hisashi Sawaki, 2015. "Horizontal Mergers Under Asymmetric Information About Synergies," Australian Economic Papers, Wiley Blackwell, vol. 54(3), pages 167-184, September.
    15. Emilie Dargaud, 2013. "Horizontal mergers, efficiency gains and remedies," European Journal of Law and Economics, Springer, vol. 36(2), pages 349-372, October.
    16. Jean-Charles Rochet, 2007. "Some economics of horizontal integration in the payments industry," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City.
    17. Amir, Rabah & Diamantoudi, Effrosyni & Xue, Licun, 2009. "Merger performance under uncertain efficiency gains," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 264-273, March.
    18. Cabolis, C. & Manasakis, C. & Moreno, D. & Petrakis, E., 2021. "The interactions of R&D investments and horizontal mergers," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 507-534.
    19. Arijit Mukherjee & Umut Erksan Senalp, 2021. "Firm‐productivity and cross border merger," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 838-859, September.
    20. Ulus Aysegul & Yildiz Halis M., 2012. "On the Relationship between Tariff Levels and the Nature of Mergers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-40, December.

    More about this item

    Keywords

    Emission tax; Pollution abatement; Start-ups; Free entry and exit; M&A;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:enreec:v:87:y:2024:i:6:d:10.1007_s10640-024-00845-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.