eThesis - Kauppakorkeakoulun sähköiset gradut

This thesis searches and evaluates the factors that determine the outcome of competition between European emissions exchanges trading different kinds of emissions allowances. Since the beginning of the scheme in 2005, various exchanges have listed these allowances as traded products offering different kinds contracts for them. Currently, one of these exchanges dominates the market by approximately 90% market share in all exchange traded emissions contracts. Classical theories on competition suggest that the market outcome is mostly determined by prices (the cost of trading), production costs and quantities. As allowance holders are allowed to trade anywhere at will, according to common theories they should trade where-ever it is the most inexpensive. Yet, traders also seek for high liquidity that ensures fast execution of orders. It seems like that the trader specific attributes might determine what different aspect she seeks from an exchange, and makes the choice accordingly. This might lead to a situation where some traders choose to use local exchanges as others find it more profitable to use international exchanges – often located in world financial centers – that might offer higher liquidity, wider product scope or greater trader heterogeneity.