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Ming-chieh Chen and Yeung-nan Shieh
''The effects of specific commodity taxes on output and location of free entry oligopoly''
( 2009, Vol. 29 No.4 )
This paper examines the impact of a specific commodity tax on output and the location decision of undifferentiated oligopolistic firms with free entry. It shows that (1) the optimum output and location of the oligopolistic firm is independent of the specific commodity tax if the demand function is linear (2) an increase in the specific commodity tax will increase (decrease) output per firm and move the plant location toward (away from) the output market if the demand function is concave (convex). These results are consistent with the conventional results based on the non-spatial setting. In the case in which the demand function is linear or concave, it shows that the number of firms and total output of oligopoly may increase. These results are significantly different from the conventional results based on non-spatial setting. It indicates that the effects of the specific tax on total output and the number of firms crucially depend upon transport costs and the location decisions of oligopolistic firms.
Keywords: undifferentiated oligopoly, specific tax, location decision.
JEL: H2 - Taxation, Subsidies, and Revenue: General
L1 - Oligopoly and Other Imperfect Markets
Manuscript Received : Feb 26 2009 Manuscript Accepted : Dec 12 2009

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