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Taxation and Durable-Goods Monopoly: Does a Current Tax Influence Firm Behavior?

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  • Gregory E. Goering

    (Department of Economics, University of Alaska)

Abstract

A simple two-period linear demand durable-goods monopoly model is analyzed where the firm faces an ad-valorem tax. Unlike previous models, the impact of an expected future tax is not analyzed; rather it is assumed the tax only is levied in the first (current) period. The model shows that such a current tax can dramatically impact the monopolist¡¯s behavior. For example, the analysis reveals that, as long as the product is durable, the firm wishes to concurrently rent and sell in period one if it faces a current ad-valorem tax. This indicates that the current tax policy on durables, separate from any expected future tax, likely also has a strong impact in imperfectly competitive durable-goods markets.

Suggested Citation

  • Gregory E. Goering, 2012. "Taxation and Durable-Goods Monopoly: Does a Current Tax Influence Firm Behavior?," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 20-28, August.
    • Handle: RePEc:bap:journl:120302
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    Cited by:

    1. Amagoia Sagasta & José M. Usategui, 2015. "Purchase and rental subsidies in durable-oligopolies," Hacienda Pública Española / Review of Public Economics, IEF, vol. 213(2), pages 11-40, June.

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    More about this item

    Keywords

    Monopoly; Durable-goods; Tax policy; Time-consistency;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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