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Environmental Taxes and Industry Monopolization

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  • de, Vries Frans
  • Schoonbeek, Lambert

Abstract

This paper considers a market with an incumbent monopolistic firm and a potential entrant. Production by both firms causes polluting emissions. The government selects a tax per unit emission by maximizing social welfare. The size of the tax rate affects whether or not the potential entrant enters the market. We identify the conditions that create a market structure where the preferences of the government and the incumbent firm coincide. Interestingly, there are cases where both the government and incumbent firm prefer a monopoly. Hence, the government might induce profitable monopolization by using a socially optimal tax policy instrument.

Suggested Citation

  • de, Vries Frans & Schoonbeek, Lambert, 2008. "Environmental Taxes and Industry Monopolization," Stirling Economics Discussion Papers 2008-19, University of Stirling, Division of Economics.
  • Handle: RePEc:stl:stledp:2008-19
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    File URL: http://hdl.handle.net/1893/512
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Katherine Cuff & Steeve Mongrain & Joanne Roberts, 2016. "Dual Corporate Tax Evasion," Discussion Papers dp16-12, Department of Economics, Simon Fraser University.
    2. Espínola-Arredondo, Ana & Muñoz-García, Félix, 2013. "When does environmental regulation facilitate entry-deterring practices," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 133-152.
    3. Ana Espínola-Arredondo & Félix Muñoz-García, 2016. "Profit-enhancing environmental policy: uninformed regulation in an entry-deterrence model," Journal of Regulatory Economics, Springer, vol. 50(2), pages 146-163, October.
    4. Alfred Endres & Tim Friehe, 2013. "The monopolistic polluter under environmental liability law: incentives for abatement and R&D," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 40(3), pages 753-770, March.
    5. Julien Bueb & Sonia Schwartz, 2011. "Strategic manipulation of a pollution permit market and international trade," Journal of Regulatory Economics, Springer, vol. 39(3), pages 313-331, June.
    6. Jihad C. Elnaboulsi, 2015. "Environmental Regulation and Policy Design: The Impact of the Regulator?s Ecological Conscience on the Tax Setting Process," Working Papers 2015-11, CRESE.
    7. Moner-Colonques Rafael & Rubio Santiago J., 2016. "The Strategic Use of Innovation to Influence Environmental Policy: Taxes versus Standards," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 973-1000, April.
    8. Barbot, Cristina & Betancor, Ofelia & Socorro, M. Pilar & Viecens, M. Fernanda, 2014. "Trade-offs between environmental regulation and market competition: Airlines, emission trading systems and entry deterrence," Transport Policy, Elsevier, vol. 33(C), pages 65-72.
    9. Ana Espínola-Arredondo & Félix Muñoz-García, 2015. "Can Poorly Informed Regulators Hinder Competition?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(3), pages 433-461, July.
    10. Katherine Cuff & Steeve Mongrain & Joanne Roberts, 2017. "Shades of Grey: Business Compliance with Fiscal and Labour Regulations," Discussion Papers dp17-07, Department of Economics, Simon Fraser University.
    11. Wirl, Franz, 2011. "Taxing incumbent monopoly to foster entry," Energy Economics, Elsevier, vol. 33(3), pages 388-398, May.
    12. Bialek, Sylwia, 2016. "Introducing Cattle Producer to the Hardin s World- Can Monopolies in Seed Markets Be Welfare Enhancing?," Annual Conference 2016 (Augsburg): Demographic Change 145786, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    taxes; market structure; environmental pollution; monopoly;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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