Environmental taxes and industry monopolization |
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Authors: | Lambert Schoonbeek Frans P de Vries |
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Institution: | (1) Department of Economics and Econometrics, Faculty of Economics and Business, University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands;(2) Department of Economics, University of Stirling, Stirling, FK9 4LA, Scotland, UK |
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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.
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Keywords: | Taxes Market structure Environmental pollution Monopoly |
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