Exploring the impact of circular economy on welfare and market power in oligopolistic markets

This paper examines the effects of circular economy policies on social welfare and average markup in an oligopolistic market using a Cournot model characterized by isoelastic demand and the production of scrap materials. We evaluate the implications of a circular economy based on recycling, comparing it with scenarios of no policy and waste taxation. Our findings reveal that the circular economy becomes increasingly preferable to waste taxation in concentrated markets with high price elasticity of demand. Furthermore, we observe that the average market power, as measured by the average Lerner index, is lower under a circular economy regime compared to both no policy and waste taxation scenarios. These results suggest that implementing circular economy practices not only enhances social welfare but also diminishes the market power of oligopolistic producers, thereby fostering a more competitive environment. This research contributes to the understanding of how circular economy policies can effectively balance economic growth and environmental sustainability within oligopolistic frameworks, providing valuable insights for policymakers aiming to promote sustainable practices in industry.