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Taxation and predatory prices in a spatial model

  • Stefano Colombo

Using a spatial model with two separated markets, we study how taxation alters the incentive to prey of an incumbent firm facing a potential entrance by another firm. We show that for intermediate levels of the transportation costs, the higher are taxes the lower are the expected gains from the predatory strategy. We also show that under some conditions setting a positive level of taxes may induce a duopolistic equilibrium instead of a monopolistic one, and this ultimately increases welfare.

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File URL: http://hdl.handle.net/10.1111/j.1435-5957.2010.00342.x
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Article provided by Wiley Blackwell in its journal Papers in Regional Science.

Volume (Year): 90 (2011)
Issue (Month): 3 (08)
Pages: 603-612

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Handle: RePEc:bla:presci:v:90:y:2011:i:3:p:603-612
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=1056-8190

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