It is widely recognized that a cost-efficient way to achieve the climate targets of the Paris agreement requires investment in carbon capture and storage (CCS). However, to trigger sizeable investment in CCS the carbon price must exceed the historic...
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ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signature:
DS 63
Inter-library loan:
No inter-library loan
It is widely recognized that a cost-efficient way to achieve the climate targets of the Paris agreement requires investment in carbon capture and storage (CCS). However, to trigger sizeable investment in CCS the carbon price must exceed the historic carbon prices. This paper examines whether a higher price of carbon enhances competition of storage services and thus leads to lower costs of CCS. Using a Hotellling model with two storage sites, each being located at each end of the Hotelling line, we show that there are three alternative competition regimes. The level of the carbon tax determines which regime materializes. For “low” carbon taxes, there is no competition between the two storage firms. For “high” carbon taxes, there is standard Bertrand competition between the two storage firms. Finally, for “intermediate” carbon taxes, there is so called partial competition with multiple equilibria. Contrary to the standard conclusion on competition, we find that when each storage site is imposed to charge the same price for all its clients, the price under monopoly is lower than under partial competition. We offer several extensions of the model as well as numerical illustrations. With our reference parameter values and a carbon tax sufficiently high to reach the Paris targets, we find that we may end in a partial competition regime.
Publisher:
Bamberg Economic Research Group, Bamberg University, Bamberg
In many markets, firms offering low-quality goods are more prominent than firms offering high-quality goods. Then, consumers are perfectly informed about the good of the prominent low-quality firm but incur search costs to bring the high-quality good...
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ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signature:
DS 19
Inter-library loan:
No inter-library loan
In many markets, firms offering low-quality goods are more prominent than firms offering high-quality goods. Then, consumers are perfectly informed about the good of the prominent low-quality firm but incur search costs to bring the high-quality good of a competitor to mind. We analyze under which circumstances the less-prominent firm has an incentive to invest in high quality. We investigate two scenarios: (i) homogeneous and (ii) heterogeneous search costs. If search costs are homogeneous, the less-prominent firm produces highquality goods for sufficiently low search costs, and an increase in search costs reduces the range of values for which the less-prominent firm invests in high quality. In contrast, if search costs are heterogeneous, the less-prominent firm produces high-quality goods for sufficiently high search cost heterogeneity, and an increase in average search costs expands the range of values for which the less-prominent firm invests in high quality.
