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Indirect taxation and consumer welfare in an asymmetric Stackelberg oligopoly

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  • Wang, Leonard F.S.
  • Zeng, Chenhang
  • Zhang, Qidi

Abstract

This paper studies undesirable competition in an asymmetric Stackelberg oligopoly under both unit and ad valorem taxation. We find that (i) under unit taxation, a rise in the number of inefficient followers hurts consumers, but the harm to consumer welfare is less severe than that under Cournot competition; (ii) under ad valorem taxation, in addition to the entry of inefficient followers, a rise in the number of efficient leaders may also hurt consumers. The harm to consumer welfare could be more severe than that under Cournot competition when the cost difference between leaders and followers is large; (iii) unit taxation yields higher consumer welfare in comparison to ad valorem taxation. Our result is important for competition policy.

Suggested Citation

  • Wang, Leonard F.S. & Zeng, Chenhang & Zhang, Qidi, 2019. "Indirect taxation and consumer welfare in an asymmetric Stackelberg oligopoly," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940819302001
    DOI: 10.1016/j.najef.2019.101034
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    Cited by:

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    2. Pak-Sing Choi & Felix Munoz-Garcia, 2023. "Can more perishable products be welfare-improving?," Economics Bulletin, AccessEcon, vol. 43(2), pages 1088-1097.
    3. Qidi Zhang & Leonard F. S. Wang, 2022. "Taxation, Network Externalities, Consumer Suffering, and Profit-Raising Entry: A Cautionary Note," Journal of Industry, Competition and Trade, Springer, vol. 22(2), pages 225-231, June.

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    More about this item

    Keywords

    Ad valorem tax; Unit tax; Consumer welfare; Stackelberg;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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