EconStor >
Institut für Weltwirtschaft (IfW), Kiel >
Economics: The Open-Access, Open-Assessment E-Journal - Discussion Papers >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/27464
  
Title:Perfecting Imperfect Competition PDF Logo
Authors:Seißer, Goetz
Issue Date:2008
Series/Report no.:Economics Discussion Papers / Institut für Weltwirtschaft 2008-28
Abstract:This paper addresses the reduction of market failure under imperfect competition. It proposes a taxscheme that provides firms with an incentive to forgo their market power: Firms optimize after-tax profits. Now simply consider a firm´s gross profit margin the unique tax-rate it is charged on absolute profits. In theory the firm´s tax-rate would be the mark-up over marginal costs, the firm´s Lerner index. As a result every firm determines its own tax-rate by setting its price and incurring costs. This creates a new trade off for firms between a low tax-burden and the exercising of market power. Welfare for society increases since firms with market power choose a lower price and produce a quantity closer or equal to social optimum; at the original monopolistic price-level they can increase their profits by lowering their tax-burden. Essentially the tax-condition does not seem to distort profit incentives or markets; under perfect competition the tax-rate would be zero. Thus, it is clear that the tax only takes effect when markets work inefficiently and its countervailing nature subsequently helps to remedy inefficiencies of imperfectly competitive markets.
Subjects:Imperfect competition
market power
tax-condition
monopoly
welfare
efficiency
JEL:H21
D40
D21
P11
H26
H25
D00
Creative Commons License:http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type:Working Paper
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Discussion Papers

Files in This Item:
File Description SizeFormat
dp2008-28.pdf264.57 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/27464

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.