Carbon Tax, Emission Standards, and Carbon Leak Under Price Competition

We consider a two-country model of price competition, with one polluting firm in each country and differentiated products. Assuming away, to simplify, abatement efforts and input substitution, we compare the impact on output, leakages, and trade volumes of a carbon tax versus an emission standard policy, unilaterally enacted by the home country. Under the tax the two firms set their prices simultaneously, in a Bertrand game. Under the standard the home firm\u2019s price is conditioned on the price of the foreign firm, so as to abide the emission constraint. As a result, the tax leads to higher leakages and global emissions than the standard. The standard also implies a better trade balance for the home country than the tax

Self-customization and price competition

New technologies increasingly provide firms with abilities to design self-customizable products, that can be redeveloped by end-users at their own expenses. The decision to market only a standard product or also a self-customizable one is a strategic one; we analyze this decision in a duopoly with product differentiation. In our model adding a customizable product cannibalizes part of own demand but also allows exploitation of a distinct segment of consumers who attach high value to customizability; it also diverts demand from the rival firm. Firms use second degree price discrimination, attaching a different price to the different products. We find the conditions leading to both firms introducing the self-customizable product, both refraining from it, and to asymmetric equilibria. Our results indicate that self-customization appears in equilibrium; it is profit improving; it can be used by only one or both firms according to the value of the market for customizability. It also leads to lower prices. An increase in consumers\u2019 ability to self-customize reduces profits, while a higher cost of self-customization increases profits. Finally a first-mover advantage arises in offering a self-customizable product

Niche vs. central firms: Technology choice and cost-price dynamics in a differentiated oligopoly

This paper is about technology choices in a differentiated oligopoly. The main questions are: whether the position in the product space affects the choice of technology, how changes in fixed costs affect price outcomes, the strategic responses to policy interventions. The industry is an oligopoly where a central firm is competing with two peripheral (or marginal) ones. The former is shown to be more ready than the latter to adopt a technology with low marginal costs and high fixed costs (Increasing Returns to Scale) rather than one with the opposite pattern (Constant Returns to Scale). The fixed cost in the IRS affects the technology configuration and hence output prices. For instance, a lower fixed cost may trigger lower prices and it is neutral only for given technologies. A price-cap may forestall a change in technologies; nondiscriminatory ad-valorem tax and taxes on variable input, or discriminatory unit taxes can also affect the technology pattern and deliver important effects on prices