Ad valorem tax versus tax per unit of output in a Bertrand competition with strictly increasing marginal cost

Amarjyoti Mahanta ()
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Amarjyoti Mahanta: Indian Institute of Technology Guwahati

Indian Economic Review, 2023, vol. 58, issue 1, No 5, 105-117

Abstract: Abstract In this paper, we show that the set of pure strategy Nash equilibrium is not equivalent in case of tax per unit of output and ad valorem tax when the firms are producing a homogeneous product with strictly convex and increasing cost function under Bertrand competition. In case of ad valorem tax, the pure strategy Nash equilibrium price range expands, whereas it remains same in case of tax per unit of output. We also find that under certain conditions, the social welfare in case of ad valorem tax is lower than tax per unit of output.

Keywords: Bertrand competition; Tax per unit of output; Ad valorem tax; Nash equilibrium (search for similar items in EconPapers)
JEL-codes: C72 H20 L13 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s41775-023-00189-6

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