IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v33y2011i3p388-398.html
   My bibliography  Save this article

Taxing incumbent monopoly to foster entry

Author

Listed:
  • Wirl, Franz

Abstract

This paper investigates whether it is welfare enhancing to tax the output of a monopoly in order to foster cost-inefficient entry. This question is of particular concern in the energy markets dominated by cartel-like affiliations (OPEC and oil, Russia's gas exports to Europe) and the interest and practice to stimulate the development of alternative fuels. Making the realistic assumption that none of the players can commit to future policies, subsidies are not a viable strategy for the government. A tax cannot be first best but can be second best if the government cannot force the incumbent monopoly to sell its output at no profit and if the incumbent's profit is discounted. However, stimulating supply by improving the conditions for entry is not the prime concern of taxation (after all it lowers aggregate supplies and may even lower the entrant's supply) but to accrue parts of the monopoly rent.

Suggested Citation

  • Wirl, Franz, 2011. "Taxing incumbent monopoly to foster entry," Energy Economics, Elsevier, vol. 33(3), pages 388-398, May.
    • Handle: RePEc:eee:eneeco:v:33:y:2011:i:3:p:388-398
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140-9883(10)00208-2
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Matti Liski & Juan-Pablo Montero, 2009. "On Coase and Hotelling," Working Papers 0903, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    2. Franz Wirl, 2007. "Energy Prices and Carbon Taxes under Uncertainty about Global Warming," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(3), pages 313-340, March.
    3. Palokangas, Tapio, 1994. "Taxation, cost-benefit analysis, and monopoly in an open economy," European Journal of Political Economy, Elsevier, vol. 10(3), pages 529-543, October.
    4. De Fraja, Gianni, 1999. "Regulation and access pricing with asymmetric information," European Economic Review, Elsevier, vol. 43(1), pages 109-134, January.
    5. Potters, Jan & Sloof, Randolph, 1996. "Interest groups: A survey of empirical models that try to assess their influence," European Journal of Political Economy, Elsevier, vol. 12(3), pages 403-442, November.
    6. Im, Jeong-Bin, 2002. "Optimal taxation of exhaustible resource under monopoly," Energy Economics, Elsevier, vol. 24(3), pages 183-197, May.
    7. Maskin, Eric S & Newbery, David M, 1990. "Disadvantageous Oil Tariffs and Dynamic Consistency," American Economic Review, American Economic Association, vol. 80(1), pages 143-156, March.
    8. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
    9. Johannes Horner & Morton I. Kamien, 2004. "Coase and Hotelling: A Meeting of the Minds," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 718-723, June.
    10. Conrad, Klaus & Wang, Jianmin, 1993. "The effect of emission taxes and abatement subsidies on market structure," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 499-518.
    11. Strand, Jon, 2010. "Optimal fossil-fuel taxation with backstop technologies and tenure risk," Energy Economics, Elsevier, vol. 32(2), pages 418-422, March.
    12. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
    13. Wirl, Franz, 2003. "Regulating Vertically Integrated Utilities When Transfers are Costly but Revenues are Beneficial," Public Choice, Springer, vol. 114(1-2), pages 175-195, January.
    14. Baffes, John, 1993. "Optimal Tax/Subsidy Intervention in Commodity Markets When the Groups of Interest Are Weighted Unequally," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 20(3), pages 365-378.
    15. Tahvonen, Olli, 1996. "Trade with Polluting Nonrenewable Resources," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 1-17, January.
    16. Lambert Schoonbeek & Frans Vries, 2009. "Environmental taxes and industry monopolization," Journal of Regulatory Economics, Springer, vol. 36(1), pages 94-106, August.
    17. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, September.
    18. Wirl Franz, 1994. "Pigouvian Taxation of Energy for Flow and Stock Externalities and Strategic, Noncompetitive Energy Pricing," Journal of Environmental Economics and Management, Elsevier, vol. 26(1), pages 1-18, January.
    19. David S. Bullock, 1994. "In Search of Rational Government: What Political Preference Function Studies Measure and Assume," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(3), pages 347-361.
    20. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    21. repec:bla:scandj:v:97:y:1995:i:3:p:411-20 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wirl, Franz, 2014. "Taxes versus permits as incentive for the intertemporal supply of a clean technology by a monopoly," Resource and Energy Economics, Elsevier, vol. 36(1), pages 248-269.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wirl, Franz, 2012. "Global warming: Prices versus quantities from a strategic point of view," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 217-229.
    2. Wirl, Franz, 2014. "Taxes versus permits as incentive for the intertemporal supply of a clean technology by a monopoly," Resource and Energy Economics, Elsevier, vol. 36(1), pages 248-269.
    3. L. Lambertini, 2014. "On the Interplay between Resource Extraction and Polluting Emissions in Oligopoly," Working Papers wp976, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Rubio, Santiago J. & Escriche, Luisa, 2001. "Strategic pigouvian taxation, stock externalities and polluting non-renewable resources," Journal of Public Economics, Elsevier, vol. 79(2), pages 297-313, February.
    5. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.
    6. Zhang, Xiao-Bing, 2014. "Strategic Carbon Taxation and Energy Pricing: The Role of Innovation," Working Papers in Economics 589, University of Gothenburg, Department of Economics.
    7. Xiao-Bing Zhang, 2024. "A Dynamic Game of Strategic Carbon Taxation and Energy Pricing with Green Technology Innovation," Dynamic Games and Applications, Springer, vol. 14(4), pages 1027-1055, September.
    8. Claudio Piga, 2003. "Pigouvian Taxation in Tourism," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(3), pages 343-359, November.
    9. Santiago Rubio, 2011. "On Capturing Rent from a Non-renewable Resource International Monopoly: Prices Versus Quantities," Dynamic Games and Applications, Springer, vol. 1(4), pages 558-580, December.
    10. Requate, Till, 2005. "Environmental Policy under Imperfect Competition: A Survey," Economics Working Papers 2005-12, Christian-Albrechts-University of Kiel, Department of Economics.
    11. Santiago J. Rubio, 2002. "On The Coincidence Of The Feedback Nash And Stackelberg Equilibria In Economic Applications Of Differential Games," Working Papers. Serie AD 2002-11, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    12. Michael Caputo & Chen Ling, 2015. "Intrinsic Comparative Dynamics of Locally Differentiable Feedback Stackelberg Equilibria," Dynamic Games and Applications, Springer, vol. 5(1), pages 1-25, March.
    13. Kenji Fujiwara & Ngo Long, 2011. "Welfare Implications of Leadership in a Resource Market under Bilateral Monopoly," Dynamic Games and Applications, Springer, vol. 1(4), pages 479-497, December.
    14. Wirl, Franz, 2008. "Energy conservation, expectations and uncertainty," Energy Economics, Elsevier, vol. 30(4), pages 1957-1972, July.
    15. Christian Beermann, 2015. "Climate Policy and the Intertemporal Supply of Fossil Resources," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 62.
    16. Keutiben, Octave, 2014. "On capturing foreign oil rents," Resource and Energy Economics, Elsevier, vol. 36(2), pages 542-555.
    17. Zhang, Xiao-Bing & Zhu, Lei, 2017. "Strategic carbon taxation and energy pricing under the threat of climate tipping events," Economic Modelling, Elsevier, vol. 60(C), pages 352-363.
    18. Espínola-Arredondo, Ana & Muñoz-García, Félix, 2013. "When does environmental regulation facilitate entry-deterring practices," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 133-152.
    19. Meredith Fowlie & Mar Reguant & Stephen P. Ryan, 2016. "Market-Based Emissions Regulation and Industry Dynamics," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 249-302.
    20. Javier Frutos & Guiomar Martín-Herrán, 2018. "Selection of a Markov Perfect Nash Equilibrium in a Class of Differential Games," Dynamic Games and Applications, Springer, vol. 8(3), pages 620-636, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:33:y:2011:i:3:p:388-398. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.