Tax Incidence in Differentiated Product Oligopoly
23 Pages Posted: 31 Mar 2000
There are 2 versions of this paper
Tax Incidence in Differentiated Product Oligopoly
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: Suggested Citation