Commodity Taxation in a Differentiated Oligopoly
The authors introduce commodity taxation into a vertical differentiation model with endogenous product selection. They show that a uniform ad valorem tax lowers both qualities, distorts the allocation of consumers between firms, and lowers the consumer prices of both variants. A small uniform tax is always welfare-improving over the no-tax equilibrium. A differentiation of tax rates may or may not be desirable on welfare grounds. If a welfare improvement is possible through a nonuniform tax, it is always the high-quality variant that must be taxed at a higher rate. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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|Date of creation:||1993|
|Date of revision:|
|Publication status:||Published in International Economic Review, vol. 35, 1994, p. 613-633.|
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