EconPapers    
Economics at your fingertips  
 

Taxing incumbent monopoly to foster entry

Franz Wirl

Energy Economics, 2011, vol. 33, issue 3, 388-398

Abstract: This paper investigates whether it is welfare enhancing to tax the output of a monopoly in order to foster cost-inefficient entry. This question is of particular concern in the energy markets dominated by cartel-like affiliations (OPEC and oil, Russia's gas exports to Europe) and the interest and practice to stimulate the development of alternative fuels. Making the realistic assumption that none of the players can commit to future policies, subsidies are not a viable strategy for the government. A tax cannot be first best but can be second best if the government cannot force the incumbent monopoly to sell its output at no profit and if the incumbent's profit is discounted. However, stimulating supply by improving the conditions for entry is not the prime concern of taxation (after all it lowers aggregate supplies and may even lower the entrant's supply) but to accrue parts of the monopoly rent.

Keywords: Sluggish; entry; Taxing; monopoly; Lack; of; commitment; Dynamic; game (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140-9883(10)00208-2
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:33:y:2011:i:3:p:388-398

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2018-06-18
Handle: RePEc:eee:eneeco:v:33:y:2011:i:3:p:388-398