Álvarez González, FranciscoAndré García, Francisco Javier2023-06-182023-06-1820161935-168210.1515/bejeap-2015-0041https://hdl.handle.net/20.500.14352/23583We analyze emission permit auctions in a framework in which a dominant firm enjoys market power both in the auction and in the secondary market while its competitor behaves in a competitive way. We obtain linear equilibrium bidding strategies for both firms and a unique equilibrium of the auction, which is optimal ex-post for the dominant firm. Under specific distributional assumptions we conclude that the auction always awards less permits to the dominant firm than the cost-effective amount. Our results serve as a warning about the properties of auctioning under market power. Under interior solution the auction allocation is dominated by grandfathering in terms of aggregated cost with probability one. As a policy implication, the specific design of the auction turns out to be crucial for cost-effectiveness. The chances of the auction to outperform grandfathering require that the former is capable of diluting the market power that is present in the secondary market.engjournal articlehttps://doi.org/10.1515/bejeap-2015-0041restricted accessCap-and-trade systemsAuctionsGrandfatheringMarket powerBayesian games of incomplete information.ComercioMicroeconomía5304.03 Comercio exterior5307.15 Teoría Microeconómica