Oligopoly meets oligopsony: The case of permits

This paper derives market equilibria (in demand functions and in bidding strategies) between oligopolists and oligopsonists in a market with intermediates and no competition in final markets. To the best of my knowledge, this theme has not been explored, despite two observations: Firstly, the commonly applied framework of non-competitive and competitive fringe firms has implausible properties for the limit of purely strategic players. Secondly, real world cases correspond at least potentially to such strategic interactions, e.g., non-competitive players selling and buying permits (CO2CO2 and SO2SO2). The major implications are that these non-competitive markets are characterized by a kind of double marginalization (on the demand and the supply side) resulting in too little trade and wrong price signals.