Oligopoly Deregulation in General Equilibrium: A Tax Neutralization Result

32 Pages Posted: 3 Jan 2003 Last revised: 31 Oct 2010

See all articles by Gilbert E. Metcalf

Gilbert E. Metcalf

Tufts University - Department of Economics; National Bureau of Economic Research (NBER)

George Norman

Tufts University - Department of Economics

Date Written: January 2003

Abstract

We examine the interplay between market structure and the form that commodity taxation should take in a general equilibrium model in which firms produce differentiated products and so are able to exert market power. Our analysis takes account of two important recent developments that affect market structure and so the appropriate design and effectiveness of commodity taxation: market deregulation and technological change. When market deregulation facilitates price discrimination, we find that tax policy is ineffective as a means to influence market structure. We further show that when tax rates are set optimally government is able to neutralize the potentially detrimental welfare impact of restrictive entry conditions in the differentiated product sector. Finally, we present conditions under which price discrimination is welfare improving.

Suggested Citation

Metcalf, Gilbert E. and Norman, George, Oligopoly Deregulation in General Equilibrium: A Tax Neutralization Result (January 2003). NBER Working Paper No. w9416. Available at SSRN: https://ssrn.com/abstract=366453

Gilbert E. Metcalf (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-3685 (Phone)
617-627-3917 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

George Norman

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States

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