ENVIRONMENTAL POLLUTION AND THE EFFECTS OF AMBIENT CHARGES IN MIXED DUOPOLY MARKETS WITH DIVERSE FIRM OBJECTIVES

Abstract

This paper uses three mixed Cournot duopoly games and examines the effects of ambient charges as a policy measure for reducing non-point source pollution. In the first game, the regulator of the government first announces the ambient charge, and after that a profit-maximizing firm and a partially cooperating firm simultaneously and independently choose their own output levels. The partially cooperating firm aims to maximize the sum of its own profit and a certain proportion of the profit of the rival. It is demonstrated that an increase in the ambient charge can lead to less pollution. In the second game, the regulator first announces the ambient charge, and after that a profit-maximizing firm and a socially concerned firm compete with each other. The socially concerned firm seeks to maximize the sum of its own profit plus a share of consumer surplus. It is also shown that an increase in the ambient charge leads to less pollution. In the third game, the regulator first announces the ambient charge, and after that a partially cooperating firm and a socially concerned firm compete with each other. It is shown that the result of this game is the same as those of the first and second games.