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Taxation and Welfare in an Oligopoly with Strategic Commitment

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  • Besley, Timothy
  • Suzumura, Kotaro

Abstract

This paper establishes comparative statics results for an oligopoly model with strategic commitment. Firms compete in two stages. In the first stage, firms decide on strategic cost-reducing R&D investment, whereas they choose output in the second stage. Taking an excise tax/subsidy as a shift parameter in the second stage game, the short-run as well as long-run effects on output, cost-reducing R&D investment, and second-best welfare will be examined. The crucial role played by the strategic substitutability of outputs as well as cost-reducing R&D investments is clarified, and a variant of the Le Chatelier-Samuelson principle in the authors' game-theoretic model is obtained. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 33 (1992)
Issue (Month): 2 (May)
Pages: 413-31

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Handle: RePEc:ier:iecrev:v:33:y:1992:i:2:p:413-31

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Cited by:
  1. Alan J. Auerbach & James R. Hines Jr., 2001. "Taxation and Economic Efficiency," NBER Working Papers 8181, National Bureau of Economic Research, Inc.
  2. Lambertini, Luca, 1997. "Optimal Fiscal Regime in a Spatial Duopoly," Journal of Urban Economics, Elsevier, vol. 41(3), pages 407-420, May.
  3. Bolle, Friedel, 2008. "Over- and under-investment according to different benchmarks," Discussion Papers 265, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  4. Blonigen, Bruce A. & Ohno, Yuka, 1998. "Endogenous protection, foreign direct investment and protection-building trade," Journal of International Economics, Elsevier, vol. 46(2), pages 205-227, December.
  5. Long, Ngo Van & Soubeyran, Antoine, 2001. "Cost Manipulation Games in Oligopoly, with Costs of Manipulating," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 505-33, May.
  6. Don Fullerton & Gilbert Metcalf, 2002. "The Distribution of Tax Burdens," Discussion Papers Series, Department of Economics, Tufts University 0201, Department of Economics, Tufts University.
  7. Gilbert E. Metcalf & Don Fullerton, 2002. "The Distribution of Tax Burdens: An Introduction," NBER Working Papers 8978, National Bureau of Economic Research, Inc.
  8. Greg Shaffer & Stephen W. Salant, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, vol. 89(3), pages 585-604, June.

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