The economics of profit-cap policy: Big Pharma, Big Tech, and the duopoly rule

Kaushik Basu, Fikri Pitsuwan () and Pengfei Zhang

Journal of Economic Behavior & Organization, 2023, vol. 215, issue C, 120-133

Abstract: A known policy dilemma occurs between the need to curb extra-large profits by some industries, like pharmaceuticals, and the need to ensure the incentive to produce is not damaged. This paper shows that a profit cap, imposed via taxation on a group of firms, can simultaneously eliminate inefficiency and excess profit by intensifying competition among oligopolistic firms. The result has a direct bearing on policy debates on COVID-19 vaccine sharing and the use of vaccine donation as a “humanitarian obligation,” and, more generally, on the regulatory institutions needed for industries that rely on R&D.

Keywords: Profit cap; Cournot oligopoly; Duopoly rule; Antitrust; Vaccine shortage (search for similar items in EconPapers)
JEL-codes: C72 D21 L13 L51 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:215:y:2023:i:c:p:120-133

DOI: 10.1016/j.jebo.2023.08.027

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