Taxation and Durable Goods Monopoly* |
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Authors: | Changhyun Kwak Jihong Lee |
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Institution: | 1. Institute of Economics, Academia Sinica, Taipei, 11529 Taiwan;2. Department of Economics, Seoul National University, Seoul, 08826 Korea |
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Abstract: | This paper studies the role of taxation in durable good markets with dynamic monopolies. By conditioning the marginal tax rate on the volume of trade, the regulator can provide incentives for the monopolist to accelerate trade. When marginal cost pricing generates a loss for the monopolist, strategic delay cannot be avoided under regulatory budget constraint and the effects of tax policy depend on the monopolist's ability to commit. In the context of binary consumer types, we find a tax policy involving “back-loaded subsidy” that achieves the second-best outcome with commitment. In contrast, without commitment, a “front-loaded subsidy” improves welfare. |
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