Endogenous timing in private and mixed duopolies with emission taxes

Abstract

This paper examines an endogenous timing game in product differentiated duopoly markets under price competition when emission tax is imposed on environmental externality. We show that a simultaneous-move (sequential-move) outcome can be an equilibrium outcome in a private duopoly under significant (insignificant) environmental externality, and that this result is reversed in a mixed duopoly. It is sharply contrast to the previous literature in private and mixed duopolies where externalities are not incorporated. We also show that when environmental externalities are significant, public leadership yields greater welfare than private leadership, and that public leadership is more robust than private leadership as an equilibrium outcome. It is also different with the previous results in the existing literature in a mixed duopoly without externalities. Finally, we find that privatization can result in a public leader becoming a private leader, but this always worsens welfare.