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Taxation and Market Power

  • Kai A. Konrad
  • Florian Morath
  • Wieland Müller

We analyze the incidence and welfare effects of unit sales tax increases in experimental monopoly and Bertrand markets. We find, in line with economic theory, that firms with no market power are able to shift a high share of the tax burden to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers, as the presence of human buyers constrains the pricing behaviour of a monopolist. Several control treatments corroborate this finding.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 47 (2014)
Issue (Month): 1 (February)
Pages: 173-202

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Handle: RePEc:cje:issued:v:47:y:2014:i:1:p:173-202
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  1. Ortona, Guido & Ottone, Stefania & Ponzano, Ferruccio & Scacciati, Francesco, 2006. "Labour supply in presence of taxation financing public services. An experimental approach," POLIS Working Papers 71, Institute of Public Policy and Public Choice - POLIS.
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  18. Sillamaa, M. A., 1999. "How work effort responds to wage taxation: An experimental test of a zero top marginal tax rate," Journal of Public Economics, Elsevier, vol. 73(1), pages 125-134, July.
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