We analyze the incidence of ad valorem and unit excise taxes in an oligopolistic industry with differentiated products and price-setting (Bertrand) firms. Both taxes may be passed on to consumers by more than 100 percent, and an increase in the tax rate can increase short run firm profits (and hence the long run number of firms). We provide summary conditions for these effects to arise. The conditions depend on demand curvatures and are written in elasticity form. Surprisingly, the analysis largely corroborates Cournot results with homogeneous demand.
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Paper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number
341.
Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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Gal-Or, Esther, 1985.
"First Mover and Second Mover Advantages,"
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Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-53, October.
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Anderson, Simon P & Neven, Damien J, 1991.
"Cournot Competition Yields Spatial Agglomeration,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 793-808, November.
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