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Tax Buyouts in Oligopoly

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  • Giorgos Stamatopoulos

Abstract

We analyze a novel tax mechanism in imperfectly competitive product markets. The government announces a per unit (or excise) tax rate and auctions‐off a number of tax exemptions. Namely, it invites the firms in the market to acquire the right to be exempted from the per unit tax. The highest bidders are exempted by paying their bids; and all other firms remain subject to it. The mechanism has a number of desirable features. First, it allows the government to collect more revenues than the standard tax policies. Further it reduces distortions as fewer firms pay the per unit tax. The mechanism reduces also the excess entry of firms that often occurs in oligopolistic markets. It creates no discrimination as all firms end up having the same net payoff, and it is voluntary as the firms choose whether to participate in the auction or not (and hence choose how to be taxed). Our mechanism can be seen as the product‐market analog of the income tax buyout fiscal mechanism (Del Negro et al. 2010).

Suggested Citation

  • Giorgos Stamatopoulos, 2026. "Tax Buyouts in Oligopoly," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 28(3), June.
    • Handle: RePEc:bla:jpbect:v:28:y:2026:i:3:n:e70116
    DOI: 10.1111/jpet.70116
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