Environmental taxes and industry monopolization

Lambert Schoonbeek, Frans P. de Vries*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

13 Citations (Scopus)

Abstract

This paper considers a market with an incumbent monopolistic firm and a potential entrant. Production by both firms causes polluting emissions. The government selects a tax per unit of emission to maximize social welfare. The size of the tax rate affects whether or not the potential entrant enters the market. We identify the conditions that create a market structure where the preferences of the government and the incumbent firm coincide. Interestingly, there are cases where both the government and incumbent firm prefer a monopoly. Hence, the government might induce profitable monopolization by using a socially optimal tax policy instrument.

Original languageEnglish
Pages (from-to)94-106
Number of pages13
JournalJournal of Regulatory Economics
Volume36
Issue number1
DOIs
Publication statusPublished - Aug-2009

Keywords

  • Taxes
  • Market structure
  • Environmental pollution
  • Monopoly
  • ENDOGENOUS MARKET-STRUCTURE
  • POLLUTING OLIGOPOLISTS
  • TAXATION
  • POLICY
  • DISECONOMIES
  • STANDARDS
  • ABATEMENT
  • MONOPOLY

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