Tax Incidence in Differentiated Product Oligopoly

Abstract:     
This paper analyzes the incidence of ad valorem and unit excise taxes under imperfect competition with differentiated products and price-setting (Bertrand) firms. Both taxes may be overshifted onto consumers, and a higher tax rate can increase short run firm profits (and hence the long run number of firms). The conditions for these results to occur depend on demand curvatures, and we provide summary statistics written in elasticity form. Surprisingly, much of the analysis corroborates Cournot results with homogeneous demand.

Note: This is a description of the paper and not the actual abstract.

JEL Classification: D43, H21, H22, L13

Accepted Paper Series