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Taxation and Market Power When Products Are Durable

Gregory E Goering and John Boyce

Journal of Regulatory Economics, 1996, vol. 9, issue 1, 83-94

Abstract: Empirical studies suggest that industries hardest hit be government regulations, such as pollution regulations, are both highly concentrated and manufacture durable products. We analyze a two-period durable goods monopoly model where the firm faces government restrictions in the form of pollution or excise taxes. In contrast to non-durable monopolistic industries, we show that taxes on pollution or an excise tax on output may increase a durable goods monopolist's commitment ability and market power. Indeed, any policy which restricts future output may have the perverse effect of increasing a monopolists's bargaining power with buyers and enhance their profits. Copyright 1996 by Kluwer Academic Publishers

Date: 1996
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Handle: RePEc:kap:regeco:v:9:y:1996:i:1:p:83-94