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Effects of ad-valorem taxes on location decision under free entry Cournot oligopoly

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  • Yeung-Nan Shieh

Abstract

This paper examines the impact of the ad-valorem commodity tax as a policy device on output and location decisions of undifferentiated oligopolistic firms with free entry. It shows that: (1) When the distance between the plant location and the output market is held constant, the optimum location for the oligopolistic firm would be independent of the ad-valorem tax if the production function is homothetic, and (2) when the distance between the plant location and the output market is a decision variable, the optimum location for the oligopolistic firm will move closer to the output market if the demand function is linear or concave. These results are significantly different from the conventional results based on the monopolistic location model. It indicates that the effect of an ad-valorem tax on the location decision of oligopolistic firms crucially depend upon the shape of demand function.

Suggested Citation

  • Yeung-Nan Shieh, 2013. "Effects of ad-valorem taxes on location decision under free entry Cournot oligopoly," Economics and Business Letters, Oviedo University Press, vol. 2(1), pages 5-12.
  • Handle: RePEc:ove:journl:aid:9524
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    File URL: http://www.unioviedo.es/reunido/index.php/EBL/article/view/9524
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    References listed on IDEAS

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    1. Hwang, Hong & Mai, Chao-Cheng & Shieh, Yeung-Nan, 2007. "Production-location decision and free entry oligopoly: A correction," Journal of Urban Economics, Elsevier, vol. 61(3), pages 576-579, May.
    2. Leon N. Moses, 1958. "Location and the Theory of Production," The Quarterly Journal of Economics, Oxford University Press, vol. 72(2), pages 259-272.
    3. Martinich, Joseph S. & Hurter, Arthur P., 1990. "Generalized comparative statics for the production-location problem," Regional Science and Urban Economics, Elsevier, vol. 20(3), pages 275-294, November.
    4. Besley, Timothy, 1989. "Commodity taxation and imperfect competition : A note on the effects of entry," Journal of Public Economics, Elsevier, vol. 40(3), pages 359-367, December.
    5. Mai, Chao-cheng & Hwang, Hong, 1992. "Production-location decision and free entry oligopoly," Journal of Urban Economics, Elsevier, vol. 31(2), pages 252-271, March.
    6. Hanoch, Giora, 1975. "The Elasticity of Scale and the Shape of Average Costs," American Economic Review, American Economic Association, vol. 65(3), pages 492-497, June.
    7. Hong Hwang & Chao-cheng Mai, 1999. "Optimal Export Taxes with an Endogenous Location," Southern Economic Journal, Southern Economic Association, vol. 65(4), pages 940-952, April.
    8. Ming Chen & Yeung-Nan Shieh, 2011. "Specific commodity taxes, output and location decision under free entry oligopoly," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 47(1), pages 25-36, August.
    9. Chiung-I Hwang & Yeung-Nan Shieh, 2007. "Factor market oligopsony and the location decision of free entry oligopoly," Economics Bulletin, AccessEcon, vol. 18(6), pages 1-7.
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    Cited by:

    1. Yeung-Nan Shieh, 2015. "A note on location and the output effect of ad-valorem taxes under free entry oligopoly," Economics and Business Letters, Oviedo University Press, vol. 4(1), pages 30-35.

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