Consumption taxes in monopolistic competition: a comment

Indirect taxes in a cross-border shopping model: a monopolistic competition approach

“…Models of monopolistic competition work more effectively when analyzing tax effects in a free entry/exit market because they accurately describe the circumstances in which short-run economic profit attracts new entrants in the long run. Of the monopolistic competition models, those of Schröder (2004), Dröge and Schröder (2009), Schröder and Sørensen (2010), and Vetter (2013) have emerged as popular approaches. 2 Second, models have been extended from a single-country to a two-country framework.…”

“…In a closed-economy version of the intra-industry trade model, Schröder and Sørensen (2010) demonstrate that the superiority of an ADV tax is not only preserved but reinforced through the intraindustry reallocation of firms. Vetter (2013) develops a model in which consumers spend some fixed proportion of their income on taxed goods and shows that ADV taxes are superior under oligopoly and monopolistic competition. However, the superiority of an ADV tax in a monopolistic competition market is challenged by Dröge and Schröder (2009), whose model includes environmental externalities.…”

Taxation and the sustainability of collusion: ad valorem versus specific taxes

“…In a strategic market game model of oligopoly, Grazzini (2006) shows that specific taxation can be superior to ad valorem taxation, but this result is driven by the social welfare function. Schröder (2004) shows that ad valorem taxation is superior to specific taxation under monopolistic competition with Dixit-Stiglitz preferences, but Vetter (2013) argues that the result is due to the functional form rather than the mode of competition.…”