Indirect taxation and consumer welfare in an asymmetric Stackelberg oligopoly

Leonard F.S. Wang, Chenhang Zeng and Qidi Zhang

The North American Journal of Economics and Finance, 2019, vol. 50, issue C

Abstract: This paper studies undesirable competition in an asymmetric Stackelberg oligopoly under both unit and ad valorem taxation. We find that (i) under unit taxation, a rise in the number of inefficient followers hurts consumers, but the harm to consumer welfare is less severe than that under Cournot competition; (ii) under ad valorem taxation, in addition to the entry of inefficient followers, a rise in the number of efficient leaders may also hurt consumers. The harm to consumer welfare could be more severe than that under Cournot competition when the cost difference between leaders and followers is large; (iii) unit taxation yields higher consumer welfare in comparison to ad valorem taxation. Our result is important for competition policy.

Keywords: Ad valorem tax; Unit tax; Consumer welfare; Stackelberg (search for similar items in EconPapers)
JEL-codes: D43 H21 L13 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940819302001

DOI: 10.1016/j.najef.2019.101034

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