Working Paper

Environmental Taxes and Industry Monopolization


Schoonbeek L & de Vries F (2008) Environmental Taxes and Industry Monopolization. Stirling Economics Discussion Paper, 2008-19.

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 emission by maximizing 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; Taxation Great Britain Environmental aspects; Environmental impact charges Great Britain; Pollution Economic aspects

JEL codes

  • H23: Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
  • L12: Monopoly; Monopolization Strategies
  • Q58: Environmental Economics: Government Policy

Title of seriesStirling Economics Discussion Paper
Number in series2008-19
Publication date online01/09/2008