Collusion Inducing Taxation of a Polluting Oligopoly

H. Benchekroun, A. Ray Chaudhuri

Research output: Working paperDiscussion paperOther research output

378 Downloads (Pure)


We show that an environmental regulation such as a tax on pollution can act as a collusive device and induce stable cartelization in an oligopolistic polluting industry. We consider a dynamic game where pollution is allowed to accumulate into a stock over time and a cartel that includes all the firms in the industry. We show that a tax on pollution emissions can make it unprofitable for any firm to leave the cartel. Moreover the cartel formation can diminish the welfare gain from environmental regulation. We provide an example where social welfare under environmental regulation and collusion of firms is below social welfare under a laisser-faire policy.
Original languageEnglish
Place of PublicationTilburg
Number of pages23
Publication statusPublished - 2008

Publication series

NameCentER Discussion Paper


  • pollution tax
  • oligopoly
  • cartel formation
  • coalition formation
  • differential game


Dive into the research topics of 'Collusion Inducing Taxation of a Polluting Oligopoly'. Together they form a unique fingerprint.

Cite this