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Taxation and the sustainability of collusion with asymmetric costs

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  • Douglas C. Turner

    (University of Florida)

Abstract

This paper explores the sustainability of collusion under either ad valorem or specific taxation in an infinitely repeated duopoly game. I compare ad valorem taxes and specific taxes that generate the same average price or tax revenue in the Nash equilibrium of the stage game. I find that collusion is less sustainable under ad valorem than specific taxation when marginal costs are asymmetric and constant.

Suggested Citation

  • Douglas C. Turner, 2022. "Taxation and the sustainability of collusion with asymmetric costs," Journal of Economics, Springer, vol. 135(1), pages 1-48, January.
    • Handle: RePEc:kap:jeczfn:v:135:y:2022:i:1:d:10.1007_s00712-021-00751-x
    DOI: 10.1007/s00712-021-00751-x
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    References listed on IDEAS

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    1. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "The efficiency of indirect taxes under imperfect competition," Journal of Public Economics, Elsevier, vol. 81(2), pages 231-251, August.
    2. Colombo, Luca & Labrecciosa, Paola, 2013. "How should commodities be taxed? A supergame-theoretic analysis," Journal of Public Economics, Elsevier, vol. 97(C), pages 196-205.
    3. 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.
    4. Luca Lambertini & Dan Sasaki, 1999. "Optimal punishments in linear duopoly supergames with product differentiation," Journal of Economics, Springer, vol. 69(2), pages 173-188, June.
    5. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
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