Indirect Taxation in Vertical Oligopoly

47 Pages Posted: 24 Dec 2014

See all articles by Martin Peitz

Martin Peitz

University of Mannheim - Department of Economics

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: December 2014

Abstract

This paper analyzes the effects of specific and ad valorem taxation in an industry with downstream and upstream oligopoly and endogenous entry in both layers. We find that it is typically more efficient to levy an ad valorem tax downstream than upstream, while it is immaterial on which layer a specific tax is levied. We also show that tax revenues should be raised only through ad valorem taxes. Furthermore, we provide conditions under which the introduction of an indirect tax improves welfare. From a total surplus perspective, excise taxes tend to appear in a less favorable light when the full vertical supply chain is considered compared to a partial analysis which only takes into account market power at one layer. Finally, we demonstrate that a tax tends to be shifted to a larger extent into the final consumer price in vertical oligopoly than in standard oligopoly.

Suggested Citation

Peitz, Martin and Reisinger, Markus, Indirect Taxation in Vertical Oligopoly (December 2014). The Journal of Industrial Economics, Vol. 62, Issue 4, pp. 709-755, 2014. Available at SSRN: https://ssrn.com/abstract=2542437 or http://dx.doi.org/10.1111/joie.12059

Martin Peitz (Contact Author)

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181-1835 (Phone)

HOME PAGE: http://peitz.vwl.uni-mannheim.de/

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department ( email )

Sonnemannstra├če 9-11
Frankfurt am Main, 60314
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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