Regulation through Output Related Profits Tax

Stephen Glaister

Journal of Industrial Economics, 1987, vol. 35, issue 3, 281-96

Abstract: Prospects are discussed for regulating a multiproduct, monopolistic enterprise through a tax on profit at a rate variable with output. Selection of weights when defining output could induce outcomes ranging from Ramsey pricing to any desired pattern of cross subsidy. The telecommunications industry is used to illustrate. If quality depends upon output (as in public transport) socially optimal pricing would be induced. The scheme has the advantage of limiting detailed intervention and preserving the profit motive. However, unrealistic assumptions are necessary and implementation would require a great deal of information. This limits its practical value. Copyright 1987 by Blackwell Publishing Ltd.

Date: 1987
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