Journal of Regulatory Economics

, Volume 36, Issue 1, pp 94–106 | Cite as

Environmental taxes and industry monopolization

  • Lambert Schoonbeek
  • Frans P. de VriesEmail author
Open Access
Original Article


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.


Taxes Market structure Environmental pollution Monopoly 

JEL Classifications

H23 L12 Q58 



We thank Allard van der Made and two anonymous referees for their helpful suggestions. The usual disclaimer applies.

Open Access

This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.


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Copyright information

© The Author(s) 2009

Authors and Affiliations

  1. 1.Department of Economics and Econometrics, Faculty of Economics and BusinessUniversity of GroningenGroningenThe Netherlands
  2. 2.Department of EconomicsUniversity of StirlingStirlingScotland, UK

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