Monopoly, Quantity Discounts, and Stepwise Taxation

23 Pages Posted: 2 Jul 2014 Last revised: 20 Mar 2016

See all articles by Winston W. Chang

Winston W. Chang

University at Buffalo - Department of Economics

Tai-Liang Chen

Date Written: March 19, 2016

Abstract

This paper investigates a stepwise tax/subsidy structure on a monopoly practicing quantity discounts. It covers four tax/subsidy systems: uniform and non-uniform schemes, each under specific and ad valorem regimes. The effects of an exogenous change in a tier's tax rate on the optimal tier sizes in all four systems are examined. For the social optimum, the paper finds that the last tier's consumer price must be set to the marginal cost. It also finds that the optimal tier-tax rates in all four systems are indeterminate, but they must be constrained by each system's optimal policy locus.

Keywords: Quantity discounts; Monopoly; Tax/Subsidy; Stepwise taxation scheme

JEL Classification: D21, D42, H21, L12

Suggested Citation

Chang, Winston W. and Chen, Tai-Liang, Monopoly, Quantity Discounts, and Stepwise Taxation (March 19, 2016). Available at SSRN: https://ssrn.com/abstract=2461257 or http://dx.doi.org/10.2139/ssrn.2461257

Winston W. Chang (Contact Author)

University at Buffalo - Department of Economics ( email )

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Department of Economics, SUNY at Buffalo
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HOME PAGE: http://arts-sciences.buffalo.edu/economics/faculty/faculty-directory/chang.html

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