Price ceiling, carbon emissions reduction and capacity investment

Abstract

We propose a capacity investment model for both monopoly and duopoly markets that incorporates a price ceiling and carbon emissions reduction. The model reveals that a stricter price ceiling has an ambiguous effect on carbon emissions in the preemptive duopoly but increases carbon emissions in the sequential duopoly and monopoly. Besides, under carbon emissions regulation, compared to the sequential duopoly, firms in the preemptive duopoly suffer a more restrictive price ceiling. This constrained degree is higher than the scenario in the monopoly. Additionally, to effectively regulate carbon emissions, we endogenously determine price ceiling, and find that the leader in the preemptive duopoly prefers to invest earlier than in sequential duopoly, while the follower delays the investment. Compared to the monopoly, firms in the preemptive duopoly always accelerate investment. Furthermore, we find that in the preemptive scenario, firms have lower value than in the sequential scenario but higher value than in the monopoly. And consumer surplus is always higher than in both the sequential scenario and monopoly.