Environmental Policy and Competition Policy
2007
This article studies the conflicting objectives of an environmental protection agency and a competition-policy authority in
an asymmetric duopoly. We examine cases where the competition-policy authority may oppose an environmental tax in
order to prevent a firm from acquiring a dominant position and/or to minimize the risk of tacit collusion. We then study an
environmental policy based on pollution-abatement investments, which may involve, for example, a design standard or
voluntary agreement. We show that the competition authority may prefer such a policy to a tax when the most efficient
producer is also the most polluting.
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