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Taxation and Predatory Prices in a Spatial Model

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  • Stefano Colombo

    () (DISCE, Università Cattolica)

Abstract

Using a spatial model with two separated markets, we study how taxation alters the incentive to prey of an incumbent firm facing a potential entrance by another firm. We show that for intermediate levels of the transportation costs, the higher are taxes the lower are the expected gains from the predatory strategy. We also show that under some conditions setting a positive level of taxes may induce a duopolistic equilibrium instead of a monopolistic one, and this ultimately increases welfare.

Suggested Citation

  • Stefano Colombo, 2010. "Taxation and Predatory Prices in a Spatial Model," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0092, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  • Handle: RePEc:ctc:serie3:ief0092
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    File URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0092.pdf
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    Cited by:

    1. Sandro Brusco & Luca Colombo & Umberto Galmarini, 2010. "Local Governments Tax Autonomy, Lobbying, and Welfare," Department of Economics Working Papers 10-01, Stony Brook University, Department of Economics.
    2. Stefano Colombo, 2013. "Differentiated Bertrand markets: restoring the minimum differentiation principle," Letters in Spatial and Resource Sciences, Springer, vol. 6(2), pages 103-108, July.
    3. Wen-Chung Guo & Fu-Chuan Lai, 2013. "The role of an intermediate market within the barbell model," Letters in Spatial and Resource Sciences, Springer, vol. 6(3), pages 151-161, November.
    4. Giuseppe Mastromatteo, 2011. "H.P. Minsky And Policies To Countervail Crises," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0102, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    5. Sun Chia-Hung, 2014. "Cournot and Bertrand Competition in a Model of Spatial Price Discrimination with Differentiated Products," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 1-22, January.
    6. Wen-Chung Guo & Fu-Chuan Lai, 2014. "Spatial price discrimination and location choice with labor markets," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(1), pages 103-119, January.
    7. Giuseppe Mastromatteo, 2011. "The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0105, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

    More about this item

    Keywords

    Taxation; Predation; Spatial model.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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