Emission Tax and Acquisition Incentives in Oligopoly Markets

Even though most acquisitions take place among manufacturing firms regulated by environmental policies, there are not many studies which model acquisition decisions when such policies are present. In this book chapter, we model acquisition incentives when polluting firms compete in a Cournot oligopoly market. Our result suggests that emission tax can affect acquisition decisions. The exact relationship between emission tax and acquisition (dis)incentives depends on the pollution intensity of the potential acquisition partners. Furthermore our findings suggest that there may be perverse incentive situations, namely cases in which dirtier firms profitably acquire cleaner firms without making use of their cleaner technology.