Oligopoly and the redistribution of market share under commodity taxation

Barry Haworth

International Advances in Economic Research, 1998, vol. 4, issue 4, 356-366

Abstract: This paper examines the effect of ad valorem and specific commodity taxation on firm market share in a duopoly where firms have different costs. Two reasons suggested for these cost asymmetries are inter-firm differences in efficiency and differences in product quality. When cost differences are efficiency-based, then specific and ad valorem commodity taxation increases the market share of the lower-cost firm and decreases the market share of the higher-cost firm. If the cost difference results from differing product quality, the specific tax increases the market share of the high quality (higher-cost) firm and decreases the market share of the low quality (lower-cost) firm, whereas, the ad valorem tax has just the opposite effect. Copyright International Atlantic Economic Society 1998

Date: 1998
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DOI: 10.1007/BF02295689

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