Emission Control in an n-Firm Oligopoly Game with Product Differentiation

Abstract

Is it possible to control NPS (non-point source) pollution whose sources, sizes, and origins are difficult to identify? This study provides a positive answer in a non-cooperative n-firm oligopoly model in which the firms determine levels of differentiated goods and abatement technologies. It first derives a Cournot–Nash equilibrium in which the firms maximize their profit and emit pollution under the ambient charge scheme, combining rewards from the total NPS concentration less than a given standard with the penalties above. The effect of the ambient charge is then analytically shown in homogeneous and heterogeneous duopoly and triopoly. Further, possible controllability is numerically examined in the case of n ≥ 4.