Taxation and Predatory Prices in a Spatial Model
Stefano Colombo ()
No ief0092, DISCE - Quaderni dell'Istituto di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)
Using a spatial model with two separated markets, we study how taxation alters the incentive to prey of an incumbent firm facing a potential entrance by another firm. We show that for intermediate levels of the transportation costs, the higher are taxes the lower are the expected gains from the predatory strategy. We also show that under some conditions setting a positive level of taxes may induce a duopolistic equilibrium instead of a monopolistic one, and this ultimately increases welfare.
Keywords: Taxation; Predation; Spatial model. (search for similar items in EconPapers)
JEL-codes: D43 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic and nep-ure
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Journal Article: Taxation and predatory prices in a spatial model (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ctc:serie3:ief0092
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