Optimal Pollution Tax in Cournot Oligopsonistic Oligopoly

Cournot oligopoly has been studied almost exclusively under the implicit assumption of perfectly competitive factor markets. However,oligopolistic firms procure often factors of production from imperfectly competitive markets. Okuguchi(1998,2000) has analyzed Cournot oligopoly under the condition of imperfectly competitive factor markets,i.e.Cournot oligopsonistic oligopoly. Some economists have analyzed the optimal pollution tax rate which maximizes the net total social surplus for Cournot oligopoly(see Barnett(1980),Baumol and Oates(1980),Levin(1985),Okuguchi and Yamazaki(1994),Simpson(1995) and Okuguchi(2003)). A general finding is that the optimal pollution tax rate may be higher,lower or equal to the marginal value of the environmental damage. In this paper I will derive a general formula for the optimal pollution tax within Cournot oligopsonistic oligopoly where both product and factor markets are imperfectly competitive. In Section 2,I will prove that there exists a unique Cournot equilibrium for oligopsonistic oligopoly,given the level of the pollution tax rate. In Section 3,I will derive the optimal pollution tax rate capitalizing on the existence result in Section 2. I will clarify economic implications of the optimal pollution tax formula for some special cases. The final Section concludes