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Environmental Taxes and Industry Monopolization

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Author Info
de Vries, Frans
Schoonbeek, L. (Lambert)

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Abstract

This paper considers a market with an incumbent monopolistic firm and a potential entrant. Production by both firms causes polluting emissions. The government selects a tax per unit emission by maximizing social welfare. The size of the tax rate affects whether or not the potential entrant enters the market. We identify the conditions that create a market structure where the preferences of the government and the incumbent firm coincide. Interestingly, there are cases where both the government and incumbent firm prefer a monopoly. Hence, the government might induce profitable monopolization by using a socially optimal tax policy instrument.

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File URL: http://hdl.handle.net/1893/512
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Paper provided by University of Stirling, Department of Economics in its series Stirling Economics Discussion Papers with number 2008-19.

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Date of creation: Sep 2008
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Handle: RePEc:stl:stledp:2008-19

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Related research
Keywords: taxes; market structure; environmental pollution; monopoly;

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  1. Maloney, Michael T & McCormick, Robert E, 1982. "A Positive Theory of Environmental Quality Regulation," Journal of Law & Economics, University of Chicago Press, vol. 25(1), pages 99-123, April.
  2. Lee, Dwight R., 1975. "Efficiency of pollution taxation and market structure," Journal of Environmental Economics and Management, Elsevier, vol. 2(1), pages 69-72, September. [Downloadable!] (restricted)
  3. Helland, Eric & Matsuno, Mayumi, 2003. "Pollution Abatement as a Barrier to Entry," Journal of Regulatory Economics, Springer, vol. 24(2), pages 243-59, September. [Downloadable!] (restricted)
  4. Puller, Steven L., 2006. "The strategic use of innovation to influence regulatory standards," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 690-706, November. [Downloadable!] (restricted)
  5. Lee, Sang-Ho, 1999. "Optimal Taxation for Polluting Oligopolists with Endogenous Market Structure," Journal of Regulatory Economics, Springer, vol. 15(3), pages 293-308, May. [Downloadable!] (restricted)
  6. Shaffer, Sherrill, 1995. "Optimal Linear Taxation of Polluting Oligopolists," Journal of Regulatory Economics, Springer, vol. 7(1), pages 85-100, January.
  7. Farzin, Y H, 2003. "The Effects of Emissions Standards on Industry," Journal of Regulatory Economics, Springer, vol. 24(3), pages 315-27, November. [Downloadable!] (restricted)
  8. Conrad, Klaus & Wang, Jianmin, 1993. "The effect of emission taxes and abatement subsidies on market structure," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 499-518. [Downloadable!] (restricted)
  9. Poyago-Theotoky, Joanna & Teerasuwannajak, Khemarat, 2002. "The Timing of Environmental Policy: A Note on the Role of Product Differentiation," Journal of Regulatory Economics, Springer, vol. 21(3), pages 305-16, May. [Downloadable!] (restricted)
  10. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-41, December. [Downloadable!] (restricted)
  11. Mark Pearson, 1995. "The political economy of implementing environmental taxes," International Tax and Public Finance, Springer, vol. 2(2), pages 357-373, August. [Downloadable!] (restricted)
  12. Misiolek, Walter S., 1980. "Effluent taxation in monopoly markets," Journal of Environmental Economics and Management, Elsevier, vol. 7(2), pages 103-107, June. [Downloadable!] (restricted)
  13. Katsoulacos, Yannis & Xepapadeas, Anastasios, 1995. " Environmental Policy under Oligopoly with Endogenous Market Structure," Scandinavian Journal of Economics, Blackwell Publishing, vol. 97(3), pages 411-20, September.
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  14. R. Simpson, 1995. "Optimal pollution taxation in a Cournot duopoly," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 6(4), pages 359-369, December. [Downloadable!] (restricted)
  15. Sherrill Shaffer, 2001. "Structural regulation of polluting oligopoly," Atlantic Economic Journal, International Atlantic Economic Society, vol. 29(1), pages 117-117, March. [Downloadable!] (restricted)
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