Oligopoly Deregulation in General Equilibrium: A Tax Neutralization Result

Gilbert Metcalf () and George Norman ()

No 210, Discussion Papers Series, Department of Economics, Tufts University from Department of Economics, Tufts University

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 H21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-pub
Date: 2002
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Working Paper: Oligopoly Deregulation in General Equilibrium: A Tax Neutralization Result (2003)
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