Advertisement

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

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.

Keywords

Taxes Market structure Environmental pollution Monopoly 

JEL Classifications

H23 L12 Q58 

Notes

Acknowledgments

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.

References

  1. Amir R., Jin J.Y. (2001) Cournot and Bertrand equilibria compared: Substitutability, complementarity and concavity. International Journal of Industrial Organization 19: 303–317CrossRefGoogle Scholar
  2. Barnett A.H. (1980) The Pigouvian tax rule under monopoly. American Economic Review 70: 1037–1041Google Scholar
  3. Baumol W.J., Oates W.E. (1988) The theory of environmental policy. Cambridge University Press, CambridgeGoogle Scholar
  4. Buchanan J.M. (1969) External diseconomies, corrective taxes and market structure. American Economic Review 59: 174–177Google Scholar
  5. Buchanan J.M., Tullock G. (1975) Polluters’ profits and political response: Direct controls versus taxes. American Economic Review 65: 139–147Google Scholar
  6. Carraro C., Katsoulacos Y., Xepapadeas A. (eds) (1996) Environmental policy and market structure. Dordrecht/Boston: Kluwer Academic PublishersGoogle Scholar
  7. Conrad K., Wang J. (1993) The effect of emission taxes and abatement subsidies on market structure. International Journal of Industrial Organization 11: 499–518CrossRefGoogle Scholar
  8. Dewees D. (1983) Instrument choice in environmental policy. Economic Inquiry 21: 53–71CrossRefGoogle Scholar
  9. Ellis H., Fellner W. (1943) External economies and diseconomies. American Economic Review 33: 493–511Google Scholar
  10. Farzin Y.H. (2003) The effects of emission standards on industry. Journal of Regulatory Economics 24: 315–327CrossRefGoogle Scholar
  11. Farzin Y.H. (2004) Can stricter environmental standards benefit the industry and enhance welfare? Annales d’ Économie et de Statistique 75(76): 223–255Google Scholar
  12. Helland E., Matsuno M. (2003) Pollution abatement as a barrier to entry. Journal of Regulatory Economics 24: 243–259CrossRefGoogle Scholar
  13. Jordon, W. (1972). Producer protection, prior market structure and the effects of government regulation. Journal of Law and Economics, 15, 151–176.CrossRefGoogle Scholar
  14. Katsoulacos, Y., & Xepapadeas, A. (1995). Environmental policy under oligopoly with endogenous market structure. Scandinavian Journal of Economics, 97, 411–420.CrossRefGoogle Scholar
  15. Lee, D. R. (1975). Efficiency of pollution taxation and market structure. Journal of Environmental Economics and Management, 2, 69–72.CrossRefGoogle Scholar
  16. Lee, S. (1999). Optimal taxation for polluting oligopolists with endogenous market structure. Journal of Regulatory Economics, 15, 293–308.CrossRefGoogle Scholar
  17. Maloney, M. T., & McCormick, R. E. (1982). A positive theory of environmental quality regulation. Journal of Law and Economics, 25, 99–123.CrossRefGoogle Scholar
  18. Misiolek W.S. (1980) Effluent taxation in monopoly markets. Journal of Environmental Economics and Management 7: 103–107CrossRefGoogle Scholar
  19. Moraga-González J. L., Padrón-Fumero N. (2002) Environmental policy in a green market. Environmental and Resource Economics 22: 419–447CrossRefGoogle Scholar
  20. OECD. (1995). Competition policy and environment. Paris: OECD.Google Scholar
  21. Pearson M. (1995) The political economy of implementing environmental taxes. International Tax and Public Finance 2: 357–373CrossRefGoogle Scholar
  22. Poyago-Theotoky J., Teerasuwannajak K. (2002) The timing of environmental policy: A note on the role of product differentiation. Journal of Regulatory Economics 21: 305–316CrossRefGoogle Scholar
  23. Puller S.L. (2006) The strategic use of innovation to influence regulatory standards. Journal of Environmental Economics and Management 52: 690–706CrossRefGoogle Scholar
  24. Salop S.C., Scheffman D.T. (1983) Raising rivals’ costs. American Economic Review 73: 267–271Google Scholar
  25. Shaffer S. (1995) Optimal linear taxation of polluting oligopolists. Journal of Regulatory Economics 7: 85–100CrossRefGoogle Scholar
  26. Shaffer S. (2001) Structural regulation of polluting oligopoly. Atlantic Economic Journal 29: 117CrossRefGoogle Scholar
  27. Simpson R.D. (1995) Optimal pollution taxation in a Cournot duopoly. Environmental and Resource Economics 6: 359–369CrossRefGoogle Scholar

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

Personalised recommendations