IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v156y2026ics0264999326000064.html

Rule-based profit taxation in dynamic Cournot oligopoly: Transmission, stability and welfare

Author

Listed:
  • Nálepová, Veronika
  • Lampart, Marek

Abstract

This study develops a dynamic Cournot model to examine whether profit taxation can stabilise oligopolistic markets hit by demand shocks. The tax rate is updated each period by a simple welfare rule, allowing fiscal policy to respond automatically to changing market conditions. The analysis connects the effectiveness with which taxes influence firms’ decision-making (the transmission strength) to market stability. Simulations and chaos analysis show that when the tax signal is strong, firms adjust smoothly, volatility falls and competition is preserved. In contrast, when transmission is weak, feedback effects magnify shocks, increasing exit risk and market concentration. Moderate shocks are absorbed through temporary tax changes, while stronger demand shocks in the model mainly threaten the high-cost firm. Overall, transparent and predictable profit taxation serves as a practical stabiliser in concentrated industries, limiting volatility without ad hoc measures and providing a scalable framework for future fiscal design.

Suggested Citation

  • Nálepová, Veronika & Lampart, Marek, 2026. "Rule-based profit taxation in dynamic Cournot oligopoly: Transmission, stability and welfare," Economic Modelling, Elsevier, vol. 156(C).
    • Handle: RePEc:eee:ecmode:v:156:y:2026:i:c:s0264999326000064
    DOI: 10.1016/j.econmod.2026.107477
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999326000064
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2026.107477?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Naimzada, A.K. & Tramontana, F., 2012. "Dynamic properties of a Cournot–Bertrand duopoly game with differentiated products," Economic Modelling, Elsevier, vol. 29(4), pages 1436-1439.
    2. Nálepová, Veronika & Lampart, Marek, 2025. "Stabilizing energy markets: A dynamic analysis of price cap regulation in oligopolistic environments," Energy Economics, Elsevier, vol. 151(C).
    3. Barnett, William A. & Serletis, Apostolos & Serletis, Demitre, 2015. "Nonlinear And Complex Dynamics In Economics," Macroeconomic Dynamics, Cambridge University Press, vol. 19(8), pages 1749-1779, December.
    4. Norman Gemmell & Oliver Morrissey & Abuzer Pinar, 2004. "Tax perceptions and preferences over tax structure in the united kingdom," Economic Journal, Royal Economic Society, vol. 114(493), pages 117-138, February.
    5. Timothy Besley & Torsten Persson, 2009. "The Origins of State Capacity: Property Rights, Taxation, and Politics," American Economic Review, American Economic Association, vol. 99(4), pages 1218-1244, September.
    6. Lambertini, Luca & Tampieri, Alessandro, 2015. "Incentives, performance and desirability of socially responsible firms in a Cournot oligopoly," Economic Modelling, Elsevier, vol. 50(C), pages 40-48.
    7. Brander, James A. & Spencer, Barbara J., 2015. "Intra-industry trade with Bertrand and Cournot oligopoly: The role of endogenous horizontal product differentiation," Research in Economics, Elsevier, vol. 69(2), pages 157-165.
    8. Jihye Jeon, 2022. "Learning and investment under demand uncertainty in container shipping," RAND Journal of Economics, RAND Corporation, vol. 53(1), pages 226-259, March.
    9. Di Wu & Leonard F. S. Wang, 2025. "Pass‐Through and Tax Incidence in Differentiated Mixed Duopoly With Managerial Delegation," American Journal of Economics and Sociology, Wiley Blackwell, vol. 84(5), pages 865-876, November.
    10. Nálepová, Veronika & Lampart, Marek, 2024. "Impact of windfall tax on market dynamics: A Cournot oligopoly model with exogenous shocks," Economic Modelling, Elsevier, vol. 137(C).
    11. Fanti, Luciano & Gori, Luca, 2012. "The dynamics of a differentiated duopoly with quantity competition," Economic Modelling, Elsevier, vol. 29(2), pages 421-427.
    12. Timothy Besley & Torsten Persson, 2010. "State Capacity, Conflict, and Development," Econometrica, Econometric Society, vol. 78(1), pages 1-34, January.
    13. Laszlo Goerke, 2017. "Tax evasion in a Cournot oligopoly with endogenous entry," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 754-779, September.
    14. Wilson, Nathan E., 2012. "Uncertain regulatory timing and market dynamics," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 102-115.
    15. Hao Cheng & Xiaoyuan Ding & Chenhang Zeng, 2024. "Cross-ownership on R&D and welfare in a mixed oligopoly: revisiting with convex cost," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 33(6), pages 819-829, August.
    16. Wang, Leonard F.S. & Zeng, Chenhang & Zhang, Qidi, 2019. "Indirect taxation and consumer welfare in an asymmetric Stackelberg oligopoly," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    17. Alm, James & Torgler, Benno, 2006. "Culture differences and tax morale in the United States and in Europe," Journal of Economic Psychology, Elsevier, vol. 27(2), pages 224-246, April.
    18. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    19. Keen, Michael & Slemrod, Joel, 2017. "Optimal tax administration," Journal of Public Economics, Elsevier, vol. 152(C), pages 133-142.
    20. Mikhail Golosov & Maxim Troshkin & Aleh Tsyvinski, 2011. "Optimal Taxation: Merging Micro and Macro Approaches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(s1), pages 147-174, August.
    21. Thomas Tørsløv & Ludvig Wier & Gabriel Zucman, 2023. "The Missing Profits of Nations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(3), pages 1499-1534.
    22. Xu, Lili & Cho, Sumi & Lee, Sang-Ho, 2016. "Emission tax and optimal privatization in Cournot–Bertrand comparison," Economic Modelling, Elsevier, vol. 55(C), pages 73-82.
    23. Martin Peitz & Markus Reisinger, 2014. "Indirect Taxation in Vertical Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 709-755, December.
    24. Michele Bisceglia & Jorge Padilla & Joe Perkins & Salvatore Piccolo, 2024. "On excessive entry in Bayes‐Cournot oligopoly," RAND Journal of Economics, RAND Corporation, vol. 55(4), pages 719-748, December.
    25. Di Wu & Leonard F. S. Wang & Jie Ma, 2024. "Corporate profit tax, managerial delegation and multinational firm's transfer pricing," Metroeconomica, Wiley Blackwell, vol. 75(3), pages 326-338, July.
    26. Michele Bisceglia & Jorge Padilla & Joe Willie Pinetop Perkins & Salvatore Piccolo, 2024. "On Excessive Entry in Bayes-Cournot Oligopoly," Post-Print hal-05241436, HAL.
    27. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470, Elsevier.
    28. Helmuts Azacis & David R Collie, 2018. "Taxation and the sustainability of collusion: ad valorem versus specific taxes," Journal of Economics, Springer, vol. 125(2), pages 173-188, October.
    29. Thomas Tørsløv & Ludvig Wier & Gabriel Zucman, 2023. "The Missing Profits of Nations," Post-Print halshs-04928943, HAL.
    30. Kazuhiko Kato, 2006. "Can Allowing to Trade Permits Enhance Welfare in Mixed Oligopoly?," Journal of Economics, Springer, vol. 88(3), pages 263-283, September.
    31. Bev Dahlby, 2008. "The Marginal Cost of Public Funds: Theory and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042509, December.
    32. Henrik Vetter, 2017. "Commodity taxes and welfare under endogenous market conduct," Journal of Economics, Springer, vol. 122(2), pages 137-154, October.
    33. Huseyin Gulen & Mihai Ion, 2016. "Editor's Choice Policy Uncertainty and Corporate Investment," The Review of Financial Studies, Society for Financial Studies, vol. 29(3), pages 523-564.
    34. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-311, April.
    35. Leonard F. S. Wang & Di Wu & Vinay Ramani, 2025. "Biased manager aggressiveness, understated profits, tax pass‐through, and tax incidence in a differentiated duopoly," International Journal of Economic Theory, The International Society for Economic Theory, vol. 21(1), pages 121-137, March.
    36. Häckner, Jonas & Herzing, Mathias, 2022. "Tax incidence in oligopolistic markets," Economics Letters, Elsevier, vol. 213(C).
    37. Nguyen, Xuan, 2015. "On the efficiency of private and state-owned enterprises in mixed markets," Economic Modelling, Elsevier, vol. 50(C), pages 130-137.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nálepová, Veronika & Lampart, Marek, 2024. "Impact of windfall tax on market dynamics: A Cournot oligopoly model with exogenous shocks," Economic Modelling, Elsevier, vol. 137(C).
    2. Bárcena-Ruiz, Juan Carlos & Garzón, María Begoña & Sagasta, Amagoia, 2024. "Partial privatization and the degree of corporate social responsibility of private investors," Economic Modelling, Elsevier, vol. 141(C).
    3. Qidi Zhang & Leonard F.S. Wang & Yapo Yang, 2020. "Indirect taxation with shadow cost of public funds in mixed oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 415-425, April.
    4. Kawasaki, Akio & Naito, Tohru, 2024. "The influence of transportation costs and environmental damage on social welfare under asymmetric multi-market mixed oligopoly," Innovation and Green Development, Elsevier, vol. 3(3).
    5. Guo, Jang-Ting & Hung, Fu-Sheng, 2020. "Tax evasion and financial development under asymmetric information in credit markets," Journal of Development Economics, Elsevier, vol. 145(C).
    6. Timothy Besley & Ethan Ilzetzki & Torsten Persson, 2013. "Weak States and Steady States: The Dynamics of Fiscal Capacity," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 205-235, October.
    7. Liang Xu & Xinyan Yan & Haoyi Yang & Wenqiao Zhang, 2026. "Prosocial CEOs and Corporate Tax Avoidance," Journal of Business Ethics, Springer, vol. 204(2), pages 367-390, March.
    8. García, Arturo & Leal, Mariel & Lee, Sang-Ho, 2018. "Time-inconsistent environmental policies with a consumer-friendly firm: Tradable permits versus emission tax," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 523-537.
    9. Dustin L. Swonder & Damián Vergara, 2025. "A Sufficient Statistics Approach to Optimal Corporate Taxes," NBER Working Papers 34517, National Bureau of Economic Research, Inc.
    10. Leonard F. S. Wang & Yoshihiro Tomaru & Chan Zhou, 2024. "Free entry in mixed oligopoly leads to insufficient privatization?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 20(1), pages 56-69, March.
    11. Mariel Leal & Arturo Garcia & Sang‐Ho Lee, 2019. "Excess Burden of Taxation and Environmental Policy Mix with a Consumer‐Friendly Firm," The Japanese Economic Review, Japanese Economic Association, vol. 70(4), pages 517-536, December.
    12. James Alm, 2019. "What Motivates Tax Compliance?," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 353-388, April.
    13. Lee, Sang-Ho & Park, Chul-Hi, 2020. "Environmental Regulations in Private and Mixed Duopolies: Emission Taxes versus Green R&D Subsidies," MPRA Paper 98833, University Library of Munich, Germany.
    14. Rubolino, Enrico, 2023. "Does weak enforcement deter tax progressivity?," Journal of Public Economics, Elsevier, vol. 219(C).
    15. Xu, Lili & Lee, Sang-Ho, 2018. "Corporate Social Responsibility And Environmental Taxation With Endogenous Entry," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 59(2), pages 61-82, December.
    16. Dong, Quan & Bárcena-Ruiz, Juan Carlos & Garzón, María Begoña, 2024. "Cooperation between governments to set up public firms," Economic Systems, Elsevier, vol. 48(2).
    17. Sarah Clifford & Jakob Miethe & Camille Semelet, 2025. "The Distribution of Profit Shifting," EconPol Policy Brief 78, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    18. Pedro Naso & Erwin Bulte & Tim Swanson, 2017. "Can there be benefits from competing legal regimes? The impact of legal pluralism in post-conflict Sierra Leone," CIES Research Paper series 56-2017, Centre for International Environmental Studies, The Graduate Institute.
    19. Montalvo, José G. & Piolatto, Amedeo & Raya, Josep, 2020. "Transaction-tax evasion in the housing market," Regional Science and Urban Economics, Elsevier, vol. 81(C).
    20. Luca Lambertini & Arsen Palestini & Alessandro Tampieri, 2016. "CSR in an Asymmetric Duopoly with Environmental Externality," Southern Economic Journal, John Wiley & Sons, vol. 83(1), pages 236-252, July.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:156:y:2026:i:c:s0264999326000064. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.