Tax Incidence in Differentiated Product Oligopoly

23 Pages Posted: 31 Mar 2000

See all articles by Simon P. Anderson

Simon P. Anderson

University of Virginia - Department of Economics

Andre de Palma

University of Cergy-Pontoise - Department of Economics

Brent Kreider

Iowa State University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 2000

Abstract

We analyze the incidence of ad valorem and unit excise taxes in an oligopolistic industry with differentiated products and price-setting (Bertrand) firms. Both taxes may be passed on to consumers by more than 100 percent, and an increase in the tax rate can increase short run firm profits (and hence the long run number of firms). We provide summary conditions for these effects to arise. The conditions depend on demand curvatures and are written in elasticity form. Surprisingly, the analysis largely corroborates Cournot results with homogeneous demand.

JEL Classification: D43, H21, H22, L13

Suggested Citation

Anderson, Simon P. and De Palma, Andre and Kreider, Brent, Tax Incidence in Differentiated Product Oligopoly (February 2000). Available at SSRN: https://ssrn.com/abstract=218272 or http://dx.doi.org/10.2139/ssrn.218272

Simon P. Anderson

University of Virginia - Department of Economics ( email )

P.O. Box 400182
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804-924-3861 (Phone)
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Andre De Palma

University of Cergy-Pontoise - Department of Economics ( email )

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Cergy-Pontoise, Cédex F-95011
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Brent Kreider (Contact Author)

Iowa State University - Department of Economics ( email )

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Ames, IA 50011
United States
515-294-6237 (Phone)
515-294-1700 (Fax)

HOME PAGE: http://www.econ.iastate.edu/faculty/kreider

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