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Tax Policy and Market Structure

  • Gerard A. Pfann
  • Hans L. van Kranenburg

A structural model of entry and taxation is presented to explain the changes in market structure resulting from the 1869 stamped paper tax reform act that abolished taxation on paper used for advertising and publishing news in the Netherlands. Data on when and where the newspapers existed and were introduced together with demographic census data are used to test the model. We find that the production-costs-reducing tax cut lowered the average market size necessary for profitable first entry and changed the competitive conduct allowing competition to grow in locally concentrated markets with sufficient potential demand. The paper's results are valuable to any policy related discussion on the effects of taxation and entry limitation on market structures and the development of new industries such as wireless telecommunication and e-businesses.

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Paper provided by Harris School of Public Policy Studies, University of Chicago in its series Working Papers with number 0022.

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Date of creation: Oct 2000
Date of revision:
Handle: RePEc:har:wpaper:0022
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