Mergers, pollution and environmental policy

Abstract

We examine the impact of abatement taxes on the pollution level in a duopoly framework with endogenous market structure. We demonstrate that an increase in abatement taxes could trigger a regime-switch from Cournot competition to merger, as well as from merger to Cournot competition. The nature of this switch is critically dependent on the nature of merger costs. However, in either case, this may cause the pollution level to increase.Mergers, pollution, abatement tax, endogenous market structure