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Tax Incidence and Demand Convexity in Cournot, Bertrand, and Cournot–Bertrand Models

Author

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  • Mark J. Tremblay
  • Victor J. Tremblay

Abstract

We investigate the price effect of an excise tax in a duopoly setting. Previous studies have considered the Cournot and Bertrand models but ignore the Cournot–Bertrand model in which one firm competes in output and the other firm competes in price. This omission is important because Cournot–Bertrand behavior is observed in the real world, and the Cournot–Bertrand model provides dramatically different results. Unlike in the Cournot and Bertrand models, we find that firms in the same industry have different pass-through rates in the Cournot–Bertrand model even when they face identical demand and cost conditions. This provides another reason why tax incidence policy is so complex.

Suggested Citation

  • Mark J. Tremblay & Victor J. Tremblay, 2017. "Tax Incidence and Demand Convexity in Cournot, Bertrand, and Cournot–Bertrand Models," Public Finance Review, , vol. 45(6), pages 748-770, November.
    • Handle: RePEc:sae:pubfin:v:45:y:2017:i:6:p:748-770
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    Citations

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    Cited by:

    1. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    2. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through and Welfare Measures under Imperfect Competition," Papers 1702.04967, arXiv.org, revised Dec 2018.
    3. Muhammad Salar Khan & Paul N. Thompson & Victor J. Tremblay, 2020. "Marijuana tax incidence, stockpiling, and cross-border substitution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 103-127, February.
    4. Ce Shang & Anh Ngo & Frank J. Chaloupka, 2020. "The pass-through of alcohol excise taxes to prices in OECD countries," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(6), pages 855-867, August.

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