The welfare dominance of ad valorem taxes over unit taxes in a single-market Cournot oligopoly is well-known. This article extends the analysis to multi-market oligopoly. Provided all ad valorem taxes are positive, unit costs are constant, firms are active in all considered markets, and a representative consumer has convex preferences, it is shown that ad valorem taxes dominate in multi-product equilibrium. We discuss the role of unit cost covariances across multi-product firms in determining the extent of cost efficiencies arising under ad valorem taxation. The issue of merger under oligopoly is also considered. Conditions are identified under which a merger increases the sum of consumer and producer surpluses while also increasing the revenue yield from a set of unit taxes. If not all firms are active in all considered markets, then it is also shown that additional conditions are required to ensure the dominance of ad valorem taxes. In multi-input Cournot oligopsony, however, unit taxation welfare dominates. This is because ad valorem taxes on inputs reduce demand elasticities, amplifying market power distortions.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
12780.
Length: 33 pages Date of creation: 10 Apr 2007 Date of revision: Handle: RePEc:isu:genres:12780
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070 Phone: +1 515.294.6741 Fax: +1 515.294.0221 Email: Web page: http://www.econ.iastate.edu More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Stephanie Bridges).
Find related papers by JEL classification: D4 - Microeconomics - - Market Structure and Pricing H2 - Public Economics - - Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Milgrom, Paul & Roberts, John, 1996.
"The LeChatelier Principle,"
American Economic Review,
American Economic Association, vol. 86(1), pages 173-79, March.
[Downloadable!] (restricted)
Other versions: