Oligopoly Deregulation in General Equilibrium: A Tax Neutralization Result

Gilbert Metcalf () and George Norman ()

No 9416, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D43 H20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ind and nep-mic
Date: Written
Note: PE
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Working Paper: Oligopoly Deregulation in General Equilibrium: A Tax Neutralization Result (2002)
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