Airlines produce two things: flights between cities and pollution. Suppose that U.S. airlines
merge so that there are only two airlines in the U.S. Delta and United. Each airline carries 300
million passengers per year. Each airline generates 100000 tons of emissions (hydrocarbons
carbon monoxide nitrogen oxides) per year in the process of making 4 million flights per year.
For Delta the marginal cost of reducing emissions is a constant $2 million per ton; for United
the marginal cost is a constant $4 million per ton.
Do they accomplish this by imposing a $3 million/ ton of emissions pollution tax?