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

Abstract

Assuming constant marginal cost, it is shown that a switch from specific to ad valorem taxation that results in the same collusive price has no effect on the critical discount factor required to sustain collusion. This result is shown to hold for Cournot oligopoly when collusion is sustained with Nash-reversion strategies or optimal-punishment strategies. In a Cournot duopoly model with linear demand and quadratic costs, it is shown that the critical discount factor is lower with an ad valorem tax than with a specific tax that results in the same collusive price. However, in contrast to Colombo and Labrecciosa (J Public Econ 97:196-205, 2013) it is shown that the revenue is always higher with an ad valorem tax than with a specific tax.

Indirect taxation with shadow cost of public funds in mixed oligopoly

“…See also Yang (1993), Anderson et al, (2001a), Anderson et al, (2001b), Wang and Zhao (2009), Lapan and Hennessy (2011), Colombo and Labrecciosa (2013), Häckner and Herzing (2016), Vetter (2017), Azacis and Collie (2018), Cheng and Yang (2014) and Wang et al, (2018).…”

“…For example, seeEtro (2006).7 For example, seeEtro (2006).8 Yang (1993),Denicolo and Matteuzzi (2000),Anderson et al, (2001b),Collie (2006),Lapan and Hennessy (2011), Vetter (2017),Azacis and Collie (2018), andWang et al, (2018) also assume equal total output under two taxation schemes.…”

Tariff simplification, privatization, and welfare superiority

“…Denicolo and Matteuzzi (2000),Collie (2006),Azacis and Collie (2018),Wang et al (2018), andTao et al (2019) also assumed equal total output under two taxation schemes.…”