The Case of the Vanishing Revenues: Auction Quotas with Monopoly
This paper examines the effects of auctioning quota licenses when monopoly power exists. With a foreign monopoly and domestic competition the sales of licenses will raise any revenue if domestic and foreign markets are segmented. More surprisingly, the inability to raise revenue is shown to persist even when partial or perfect arbitrage across markets is possible, as long as the quota is not too far from the free trade import level. In contrast, when there is a home monopoly and foreign competition, the price of a quota license can be positive so that selling licenses can dominate giving them away. However, because of the absence of any profit shifting, welfare falls even when licenses do indeed raise revenue.
|Date of creation:||Feb 1989|
|Publication status:||published as The American Economic Review, Vol. 80, No. 4, pp. 828-836, (September 1990) .|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Kala Krishna, 1988. "The Case of the Vanishing Revenues: Auction Quotas With Oligopoly," NBER Working Papers 2723, National Bureau of Economic Research, Inc.
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