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- Title
Environmental Taxes in Duopoly with Soft Capacity Constraints.
- Authors
Vetter, Henrik
- Abstract
This paper examines an environmental tax when duopolistic firms engage in capacity-price competition. Under soft capacity constraints, the equilibrium ranges from Bertrand competition to Cournot competition, depending upon parameters. It is shown that a unit tax potentially changes the qualitative nature of equilibrium. That is, the type of tax affects the mode of competition between firms. This effect gives rise to the result that a unit tax is sometimes an inefficient instrument. The explanation is that the tax that leads to the first-best under Cournot competition will in fact sustain Bertrand competition, and vice versa.
- Subjects
ENVIRONMENTAL impact charges; DUOPOLIES; TAX research; ECONOMIC competition; COMMERCE; PRICING
- Publication
B.E. Journal of Economic Analysis & Policy, 2014, Vol 14, Issue 4, p1569
- ISSN
2194-6108
- Publication type
Article
- DOI
10.1515/bejeap-2013-0138