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

Azacis, Helmuts ORCID: https://orcid.org/0000-0002-6061-2100 and Collie, David ORCID: https://orcid.org/0000-0002-3132-648X 2018. Taxation and the sustainability of collusion: ad valorem versus specific taxes. Journal of Economics 125 (2) , pp. 173-188. 10.1007/s00712-017-0584-y

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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 (2013) it is shown that the revenue is always higher with an ad valorem tax than with a specific tax.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	Springer Verlag
ISSN:	0931-8658
Date of First Compliant Deposit:	14 November 2017
Date of Acceptance:	13 November 2017
Last Modified:	05 May 2023 13:24
URI:	https://orca.cardiff.ac.uk/id/eprint/106474

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