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Taxation and Market Power
Author(s) -
Konrad Kai A.,
Morath Florian,
Müller Wieland
Publication year - 2014
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12067
Subject(s) - monopoly , tax incidence , microeconomics , market power , economics , welfare , market share , control (management) , business , power (physics) , ad valorem tax , public economics , market economy , double taxation , finance , physics , management , quantum mechanics
We analyze the incidence and welfare effects of unit sales tax increases in experimental monopoly and Bertrand markets. We find, in line with economic theory, that firms with no market power are able to shift a high share of the tax burden to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers, as the presence of human buyers constrains the pricing behaviour of a monopolist. Several control treatments corroborate this finding.