Environmental taxes and industry monopolization

Citation

Schoonbeek L & de Vries F (2009) Environmental taxes and industry monopolization. Journal of Regulatory Economics, 36 (1), pp. 94-106. https://doi.org/10.1007/s11149-009-9093-4

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; Pollution Economic aspects; Environmental impact charges Great Britain; Taxation Great Britain Environmental aspects

Journal
Journal of Regulatory Economics: Volume 36, Issue 1