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Tax Incidence and Demand Convexity in Cournot, Bertrand, and Cournot–Bertrand Models

Mark Tremblay and Victor J. Tremblay

Public Finance Review, 2017, vol. 45, issue 6, 748-770

Abstract: We investigate the price effect of an excise tax in a duopoly setting. Previous studies have considered the Cournot and Bertrand models but ignore the Cournot–Bertrand model in which one firm competes in output and the other firm competes in price. This omission is important because Cournot–Bertrand behavior is observed in the real world, and the Cournot–Bertrand model provides dramatically different results. Unlike in the Cournot and Bertrand models, we find that firms in the same industry have different pass-through rates in the Cournot–Bertrand model even when they face identical demand and cost conditions. This provides another reason why tax incidence policy is so complex.

Keywords: tax incidence; excise tax; Cournot model; Bertrand model; Cournot–Bertrand model (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:45:y:2017:i:6:p:748-770

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