Strategic Behavior and the Environment > Vol 2 > Issue 2

Environmental Regulation and Horizontal Mergers in the Eco-industry

Joan Canton, European Commission, Directorate General for Climate Action, Belgium, , Maia David, UMR INRA-Agro Paris Tech Economie Publique, France, , Bernard Sinclair-Desgagné, HEC Montréal, CIRANO and École Polytechnique (Paris),
Suggested Citation
Joan Canton, Maia David and Bernard Sinclair-Desgagné (2012), "Environmental Regulation and Horizontal Mergers in the Eco-industry", Strategic Behavior and the Environment: Vol. 2: No. 2, pp 107-132.

Publication Date: 30 Jul 2012
© 2012 J. Canton, M. David and B. Sinclair-Desgagné
Eco-industryHorizontal mergersEnvironmental policy


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In this article:
The Basic Model 
Horizontal Mergers 
A Welfare Analysis 
Conflicts within Government 
Concluding Remarks 


This paper considers the welfare and policy implications of a merger between environment firms (i.e., firms managing environmental resources or supplying pollution abatement goods and services). The traditional analysis of mergers in Cournot oligopolies is extended in two ways. First, we show how a pollution tax affects the incentives of environment firms to merge. Second, we stress that mergers in the eco-industry impact welfare beyond what is observed in other sectors, due to an extra effect on pollution abatement efforts. This might lead to disagreements between an anti-trust agency seeking to limit market concentration which can be detrimental to consumer surplus and a benevolent regulator who maximizes total welfare.