Reducing greenhouse gas emissions: a duopoly market pricing competition and cooperation under the carbon emissions cap

• DOI: 10.1007/s11356-017-8767-1
• Publication Date: 2017-05-17T17:38:08Z
• Authors: Ming Jian; Hua He; Changsong Ma; Yan Wu; Hao Yang
• Keywords: Conservation of Natural Resources; Commerce; 02 engineering and technology; 7. Clean energy; Carbon; 12. Responsible consumption; Greenhouse Gases; 13. Climate action; Air Pollution; 11. Sustainability; Costs and Cost Analysis; 0202 electrical engineering, electronic engineering, information engineering

This article studies the price competition and cooperation in a duopoly that is subjected to carbon emissions cap. The study assumes that in a departure from the classical Bertrand game, there is still a market for both firms' goods regardless of the product price, even though production capacity is limited by carbon emissions regulation. Through the decentralized decision making of both firms under perfect information, the results are unstable. The firm with the lower maximum production capacity under carbon emissions regulation and the firm with the higher maximum production capacity both seek market price cooperation. By designing an internal carbon credits trading mechanism, we can ensure that the production capacity of the firm with the higher maximum production capacity under carbon emissions regulation reaches price equilibrium. Also, the negotiation power of the duopoly would affect the price equilibrium.