9. Markets Are not Created Equal

Markets are assumed by the logic of capital budgeting to be homogeneous. For this reason, differences in market structures, scale, complexities, connectivity, and administrative approaches are assumed to be value neutral or inconsequential. This chapter illustrates that these factors influence the sequencing of commitments and shows the differing impacts they have on a firm’s performance (or policy outcomes). When market structures and competition are considered, monopolists tend to defer commitments until the option premium is significantly high, in the absence of pre-emption threats. However, increasing competition encourages firms to exercise early in order to lock in payoffs that could otherwise be lost to rivals—a classic prisoner’s dilemma. Managerial capabilities differ according to the strength of subsidies’ rent-extractive bias, through the exercise of strategic choices. Managers abdicate their technology choices decisions to policy under regimes of generous subsidies. Carbon taxation uses pricing signals to influence the types or mix of supplies that managers may eventually choose. Two policy experiences are examined: Australia’s failed programme is contrasted with Canada’s relatively viable experiments in British Columbia.