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Ad valorem tax versus tax per unit of output in a Bertrand competition with strictly increasing marginal cost

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  • Amarjyoti Mahanta

    (Indian Institute of Technology Guwahati)

Abstract

In this paper, we show that the set of pure strategy Nash equilibrium is not equivalent in case of tax per unit of output and ad valorem tax when the firms are producing a homogeneous product with strictly convex and increasing cost function under Bertrand competition. In case of ad valorem tax, the pure strategy Nash equilibrium price range expands, whereas it remains same in case of tax per unit of output. We also find that under certain conditions, the social welfare in case of ad valorem tax is lower than tax per unit of output.

Suggested Citation

  • Amarjyoti Mahanta, 2023. "Ad valorem tax versus tax per unit of output in a Bertrand competition with strictly increasing marginal cost," Indian Economic Review, Springer, vol. 58(1), pages 105-117, June.
    • Handle: RePEc:spr:inecre:v:58:y:2023:i:1:d:10.1007_s41775-023-00189-6
    DOI: 10.1007/s41775-023-00189-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Bertrand competition; Tax per unit of output; Ad valorem tax; Nash equilibrium;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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