The effects of specific commodity taxes on output and location of free entry oligopoly
AbstractThis paper examines the impact of a specific commodity tax on output and the location decision of undifferentiated oligopolistic firms with free entry. It shows that (1) the optimum output and location of the oligopolistic firm is independent of the specific commodity tax if the demand function is linear (2) an increase in the specific commodity tax will increase (decrease) output per firm and move the plant location toward (away from) the output market if the demand function is concave (convex). These results are consistent with the conventional results based on the non-spatial setting. In the case in which the demand function is linear or concave, it shows that the number of firms and total output of oligopoly may increase. These results are significantly different from the conventional results based on non-spatial setting. It indicates that the effects of the specific tax on total output and the number of firms crucially depend upon transport costs and the location decisions of oligopolistic firms.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 29 (2009)
Issue (Month): 4 ()
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undifferentiated oligopoly; specific tax; location decision.;
Find related papers by JEL classification:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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- Hwang, Hong & Mai, Chao-Cheng & Shieh, Yeung-Nan, 2007. "Production-location decision and free entry oligopoly: A correction," Journal of Urban Economics, Elsevier, vol. 61(3), pages 576-579, May.
- Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
- Besley, Timothy, 1989. "Commodity taxation and imperfect competition : A note on the effects of entry," Journal of Public Economics, Elsevier, vol. 40(3), pages 359-367, December.
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