Back to Brent Kreider's research

Tax Incidence in Differentiated Product Oligopoly

Journal of Public Economics (JPubE) August 2001, 173-192, with Simon Anderson and Andre de Palma

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.