how should commodities be taxed market structure product heterogeneity and the optimal structure of commodity taxes abstract this paper is concerned with the form in which commodity taxes are best imposed and particularly with the appropriate balance between specific and ad valorem components this neglected issue is of policy importance in relation to the harmonization of tax structures within the eec and of theoretical interest as a point of contact between optimal tax theory and models of non price competition the roles of the two taxes as purely corrective devices under a variety of market forms are established and discussed the analysis suggests that heavily taxed commodities should normally be subject to high specific rather than high ad valorem taxes

indirect taxation and undesirable competition abstract this paper studies undesirable competition in an asymmetric oligopoly under ad valorem taxation we show that when the cost advantage of efficient firms is large both the entry of and the cost reduction in efficient firms raise social welfare but unexpectedly hurt consumers moreover we find that unit taxation yields higher consumer surplus in equilibrium and it could also be welfare superior to ad valorem taxation under certain conditions

efficiency considerations and the exemption of food from sales and value added taxes we evaluate efficiency considerations underlying the widespread exemption of food from sales and value added taxes and the implications for tax policy household and restau rant meals and both constant and increasing returns cases are examined higher taxes on food offset the non taxation of time inputs into household production even under constant returns to scale with increasing returns gains from taxing food are higher and amplified by subsidizing restaurant food and all marginal cost components of restaurant meals on effi ciency grounds exemption of food from sales and value added taxes emerges as socially costly policy especially under increasing returns

the incidence of non linear price dependent consumption taxes abstract the present article generalizes economic literature on the incidence of consumption taxes to general schedules of consumption taxes dependent on price previous studies were limited to the cases of per unit and ad valorem taxes three main contributions are made methodologically the elasticity of the tax function is introduced as a new parameter so that the price elasticity of general consumption tax schedules in different models of imperfect competition might be dealt with in a tractable manner theoretically existing results on the difference between the incidence of ad valorem and per unit consumption taxes are generalized to non linear consumption taxes the larger the elasticity of the tax function the smaller the share of consumption tax borne by consumers from the perspective of applied public economics it is shown how the regulator may reduce prices in very uncompetitive markets by increasing the elasticity of the consumption tax on a targeted range of producer prices

the design of insurance coverage for medical products under imperfect competition this paper studies the design of health insurance with ex post moral hazard when there is imperfect competition in the market for the medical product various scenarios such as monopoly pricing or horizontal differentiation are considered insurers or their regulator can commit to a reimbursement policy which specifies two types of copayments an ad valoremcoinsurance rate and a specific per unit copayment by combining both copayment rates in an adequate way the insurer can effectively control the producer price which is then set so that the producer s revenue just covers fixed costs consequently a suitable regulation of the copayment instruments leads to the same reimbursement rule as under perfect competition for medical products additional rationing of coverage because of imperfect competition is notnecessary the optimal policy involves the smallest possible copayment combined with the largest possible coinsurance rate such that the participation constraint of health providers is binding

price pass through and the minimum wage this paper tests a textbook consequence of competitive markets that an industry wide increase in the price of labor is passed on to consumers through an increase in prices using several data sources on restaurant prices i explore the price impact of minimum wage hikes in canada and the united states particular attention is paid to the timing of these price responses to gauge the stickiness of minimum wage cost shocks i find that restaurant prices generally rise with changes in the wage bill and that this response is concentrated in the quarter surrounding the month during which the legislation is enacted

the comparative efficiency of ad valorem and specific taxes under monopoly and monopsony abstract it is well known that ad valorem taxes welfare dominate specific taxes under monopoly this paper demonstrates that the comparative welfare ranking of the two instruments reverses under monopsony the relative performance of alternative tax forms is thus highly sensitive to whether the buyer or seller has market power

the effects of taxation price control and government contracts in oligopoly and monopolistic competition abstract many government contracts with or policies towards oligopolistic sectors essentially involve private firms selling a given proportion or quantity of output to the government at a fixed price p r with the remainder being sold on the open market often this is combined with consumer rationing examples include cement and sugar in india and health housing and defence in many countries the paper investigates the effects of these schemes including sales and excise taxation on prices output and household welfare under oligopoly and monopolistic competition less government control reduced may raise prices and tax shifting can be above or below 100 percent

impact of cost shocks on consumer prices in vertically related markets the case of the french soft drink market we develop a structural econometric model of the vertical contracts between soft drink manufacturers and retailers to assess the impact of taxes or changes in production costs on consumer prices using individual data on food purchases from a representative survey of 19 000 french households in 2005 we estimate consumer demand using a random utility approach among a set of possible vertical relationships we select the model that best fits the data we evaluate the pass through rate of changes in input costs sugar or of taxes and show that the industry over shifts cost changes or excise taxes to the consumers this result challenges the belief that firms do not pass on the full extent of cost changes or excise taxes to consumers

do cigarette producers price discriminate by state an empirical analysis of local cigarette pricing and taxation abstract this study analyzes the interactive effects of oligopoly pricing state taxation and anti smoking regulations on retail cigarette prices by state using panel data for the 50 us states between 1960 and 1990 the results indicate that cigarette producers do price discriminate by state though the effect is not large relative to the final retail price there are two further results 1 state taxes are more than passed on a 1 cent state tax increase results in a price increase of 1 11 cents and 2 sellers offset state and local anti smoking laws with lower prices thereby blunting effects of the regulations

index investment and financialization of commodities the authors found that concurrent with the rapidly growing index investment in commodity markets since the early 2000s prices of non energy commodity futures in the united states have become incr

organic label bargaining power and profit sharing in the french fluid milk market the paper determines how the value added created by an organic label is shared in a vertical chain among manufacturers and retailers using purchase data on the french fluid milk sector we develop a structural econometric model of demand and supply that takes into account the bargaining power between manufacturers and retailers our results suggest that the organic label segment is more profitable as it permits the existence of higher margins moreover an organic label allows manufacturers to achieve more bargaining power relative to retailers and hence to obtain a higher share of total margins the econometric model is then used to assess the impact of an environmental policy in favor of the organic segment based on a mechanism of price support our results suggest that while a subsidy policy towards organic products benefits both manufacturers and retailers a tax policy toward conventional products benefits manufacturers of national brands at the expense of retailers and manufacturers that provide the private labels the benefits of such policies on the environment is relatively small all such policies tend to increase the impact on global warming and land use but reduce the impact on eutrophication acidification and energy use

two stage residual inclusion estimation addressing endogeneity in health econometric modeling the paper focuses on two estimation methods that have been widely used to address endogeneity in empirical research in health economics and health services research two stage predictor substitution 2sps and two stage residual inclusion 2sri 2sps is the rote extension to nonlinear models of the popular linear two stage least squares estimator the 2sri estimator is similar except that in the second stage regression the endogenous variables are not replaced by first stage predictors instead first stage residuals are included as additional regressors in a generic parametric framework we show that 2sri is consistent and 2sps is not results from a simulation study and an illustrative example also recommend against 2sps and favor 2sri our findings are important given that there are many prominent examples of the application of inconsistent 2sps in the recent literature this study can be used as a guide by future researchers in health economics who are confronted with endogeneity in their empirical work

a classification of factors influencing participation in collusive tendering agreements the morality of tendering practices is an issue of economic and social significance especially when large government contracts are involved criticisms are mostly concentrated around collusive tendering illegal agreements between tenderers that result in seemingly competitive bids price fixing or market distribution schemes that circumvent the spirit of free competition and defraud clients although collusion has been identified as an endemic malaise of tendering its behavioural and moral dimensions have not been systematically studied before the paper addresses this knowledge gap and describes part of an exploratory empirical investigation of the decision making patterns utilised by estimators in australia slargest construction organisations

the efficiency of indirect taxes under imperfect competition abstract this paper considers the relative efficiency of ad valorem and unit taxes in imperfectly competitive markets we provide a simple proof that ad valorem taxes are welfare superior to unit taxes in the short run when production costs are identical across firms the proof covers differentiated products and a wide range of market conduct cost asymmetries strengthen the case for ad valorem taxation under cournot competition but unit taxation may be welfare superior under bertrand competition with product differentiation ad valorem taxation is superior with free entry under cournot competition but not necessarily under price competition when consumers value variety

risk sharing in licensing abstract this paper studies the design of linear license contracts under demand or cost uncertainty the optimal contract consists in general of a mix of a fixed fee and royalties the source of uncertainty has a crucial impact on the type of royalties that must be used in particular under demand uncertainty at most two of the instruments are used the contract generally combines a fixed fee with an ad valorem royalty when cost is uncertain a wider variety of cases can arise the contract may involve a combination of either type of royalties coupled with a fixed fee alternatively it may be optimal to use all three available instruments

index investment and the financialization of commodities the authors found that concurrent with the rapidly growing index investment in commodity markets since the early 2000s prices of non energy commodity futures in the united states have become increasingly correlated with oil prices this trend has been significantly more pronounced for commodities in two popular commodity indices this finding reflects the financialization of the commodity markets and helps explain the large increase in the price volatility of non energy commodities around 2008

tax incidence in differentiated product oligopoly abstract we analyze the incidence of ad valorem and unit excise taxes in an oligopolistic industry with differentiated products and price setting bertrand firms both taxes may be passed on to consumers by more than 100 percent and an increase in the tax rate can increase short run firm profits and hence the long run number of firms we provide summary conditions for these effects to arise the conditions depend on demand curvatures and are written in elasticity form surprisingly the analysis largely corroborates cournot results with homogeneous demand

a pareto comparison of ad valorem and unit taxes in noncompetitive environments abstract a literature that began with wicksell 1896 has shown that an ad valorem tax is welfare superior to an equal yield unit tax in both monopoly and oligopoly markets this paper proves a stronger result for any unit tax imposed on a monopoly there exists an ad valorem tax that pareto dominates it that produces larger profit tax revenue and consumer surplus the paper then considers whether this pareto result generalizes to all cournot nash oligopolies the paper shows that pareto dominance holds in such markets whenever the tax level exceeds a critical value that depends on various market parameters

environmental tax in a green market we examine the impact of an emission tax in a green market characterized by consumers environmental awareness and competition between firms for both environmental quality and product prices the unique aspect of this model comes from the assumption that the cost for an increase in quality is fixed we show that the emission tax improves welfare thanks to a decline in pollution and despite an accentuation of product differentiation the higher the marginal environmental damage is the higher the optimal tax will be the optimal tax however becomes lower than the marginal damage when the market is not too large finally when marginal environmental damage is not too low the optimal tax leads to a green product monopoly

domestic tax reform and international oligopoly abstract this paper examines the strategic use of domestic tax instruments and the welfare effects of multilateral domestic tax reform in a model of international cournot oligopoly the welfare effects of commodity tax harmonization appropriately defined are precisely as in the competitive case it is always potentially pareto improving and starting from the nash equilibrium in tax rates is pareto improving without any need for compensation a mutual reduction of production subsidies benefits the efficient low marginal cost country and harms the inefficient despite the pre existing monopoly distortion the effect on global efficiency is ambiguous

welfare ranking ad valorem and specific tariffs under monopolistic competition actual trade and tariff policy prefers ad valorem tariffs to specific tariffs yet in this paper we show that in a setting of monopolistic competition realizing a given restriction on imports via a specific tariff would generate more consumer utility than obtaining the same restriction via an ad valorem tariff jel classification f12 un classement en terme de bien etre des droits de douane ad valorem et specifiques quand on est en regime de concurrence monopolistique les politiques commerciales en vigueur pref rent les droits de douane ad valorem aux droits de douane specifiques or ce memoire montre que dans un contexte de concurrence monopolistique reduire les importations par le truchement d un droit de douane specifique genere plus d utilite pour le consommateur que les memes restrictions obtenues par le truchement d un droit de douane ad valorem

an empirical study of an auction with asymmetric information this paper examines federal auctions for drain age leases on the outer continental shelf from 1959 to 1969 these are leases that are adjacent to tracts on which a deposit has been discovered the authors find that the data strongly support the hypotheses that neighbor firms are better informed about the value of a lease than nonneighbor firms that neighbor firms coordinate their bidding decisions and that both types of firms bid strategically in accordance with the bayesian nash equilibrium model for first price sealed bid auctions with asymmetric information

are flexible taxation mechanisms effective in stabilizing fuel prices an evaluation considering wholesale fuel markets in this paper we study the incidence of specific taxes in the italian fuel markets and exploit these findings to simulate the effects of fiscal policies aimed at mitigating oil price fluctuations we estimate several reduced form specifications using as dependent variables the equilibrium wholesale prices for gasoline and motor diesel over the period 1996 2007 in particular we assess the impact on wholesale gasoline and motor diesel prices stemming from the creation of an automatic fiscal mechanism consisting of reductions in specific taxes matching the rise in oil prices our simulations suggest that flexible taxation mechanisms could not be a proper policy for stabilizing price levels in fuel markets a more effective control on prices can be obtained by focusing on the market structure of these industries where antitrust authority could play a significant role

prices rise faster than they fall output prices tend to respond faster to input increases than to decreases this tendency is found in more than two of every three markets examined it is found as frequently in producer goods markets as in consumer goods markets in both kinds of markets the asymmetric response to cost shocks is substantial and durable on average the immediate response to a positive cost shock is at least twice the response to a negative shock and that difference is sustained for at least five to eight months unlike past studies which documented similar asymmetries in selected markets gasoline agricultural products etc this one uses large samples of diverse products 77 consumer and 165 producer goods accordingly the results suggest a gap in an essential part of economic theory as a start on filling this gap the study finds no asymmetry in the resonse of an individual decision maker a supermarket chain to its costs but it finds above average asymmetry where a cost shock is filtered through a fragmented w

who pays sales taxes evidence from french vat reforms 1987 1999 the point of this paper is to provide visual evidence of tax shifting and to measure empirically the distribution of the sales tax burden between consumers and producers for that purpose two french reforms are studied these reforms entail steep decreases of the vat rate september 1st 1987 the vat rate on car sales went down from the luxury rate of 33 33 to the full rate of 18 6 september 1st 1999 the vat rate on housing repair services went down from the full rate of 20 6 to the reduced rate of 5 5 the consumer share of the sales tax burden is 57 in the new car sales market and 77 in the housing repair services market

is the relationship between gold and the u s dollar always negative the role of macroeconomic uncertainty abstractthe main work of this article is to access the role of macroeconomic uncertainty in effecting the correlation between gold and the dollar the empirical analysis is divided into two parts firstly we examine the impact of macroeconomic uncertainty on short and long correlation between gold and the dollar secondly we analyse the explanatory power of economic uncertainty for the abnormal market relation between gold and the dollar with a threshold model in particular we investigate impacts of economic uncertainty sourced from different economies the empirical results indicate that economic uncertainty generates direct impacts on the correlation between gold and the dollar moreover our results emphasize that uncertainty sourced from different economies have different impacts on the dynamics between gold and the dollar this article also presents the relative contribution of gold and the dollar shocks to the likelihood of being in the high uncertainty regime these results have implications fo

asset market linkages evidence from financial commodity and real estate assets abstract we use a general markov switching model to examine the relationships between returns over three different asset classes financial assets us stocks and treasury bonds commodities oil and gold and real estate assets us case shiller index we confirm the existence of two distinct regimes a tranquil regime with periods of economic expansion and a crisis regime with periods of economic decline the tranquil regime is characterized by lower volatility and significantly positive stock returns during these periods there is also evidence of a flight from quality from gold to stocks by contrast the crisis regime is characterized by higher volatility and sharply negative stock returns along with evidence of contagion between stocks oil and real estate furthermore during these periods there is strong evidence of a flight to quality from stocks to treasury bonds

the comparison between ad valorem and specific taxation under imperfect competition abstract this paper compares ad valorem and specific taxation in two models of oligopoly with and without free entry predominantly ad valorem taxation implies a relatively low consumer price high tax revenue and when entry is precluded low profits ad valorem taxation dominates specific taxation from the welfare perspective the set of circumstances under which with free entry specific taxation raises welfare is a strict subset of that in which ad valorem taxation is welfare improving and in both models the maximisation of consumer welfare subject to a binding revenue constraint requires maximum reliance on ad valorem taxation

optimal cartel trigger price strategies abstract a dynamical model of industry equilibrium is described in which a cartel deters deviations from collusive output levels by threatening to produce at cournot quantities for a period of fixed duration whenever the market price falls below some trigger price in this model firms can observe only their own production level and a common market price the market demand curve is assumed to have a stochastic component so that an unexpectedly low price may signal either deviations from collusive output levels or a downward demand shock

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

who bears the cost of a change in the exchange rate pass through accounting for the case of beer abstract nominal exchange rates are remarkably volatile they ordinarily appear disconnected from the fundamentals of the economies whose currencies they price these facts make up a classic puzzle about the international economy if prices do not respond fully to changes in the nominal exchange rate who bears the cost of such large and unpredictable changes foreign firms domestic firms or domestic consumers this study presents a new analysis of the sources of incomplete pass through and then uses this analysis to re examine its implications for social welfare i develop and estimate a structural model that analyzes the sources of local currency price stability for a particular industry the model enables counterfactual simulations that quantify the relative importance of firms local cost components and markup adjustments in the incomplete transmission of exchange rate shocks to prices and the effect of the exchange rate shock on domestic and foreign firms profits and on consumer surplus the model is applied to a panel dataset of one industry with retail and wholesale prices for upc level products i find that markup adjustments by manufacturers and the retailer explain roughly half of the incomplete transmission and local cost components account for the other half foreign manufacturers generally bear a greater cost or reap a greater benefit following an exchange rate induced marginal cost shock than do domestic consumers domestic manufacturers or the domestic retailer

resale price maintenance and interlocking relationships dampening of interbrand as well intrabrand competition is often advanced to justify per se illegality of rpm we analyze this argument in a context where rival manufacturers distribute their products through the same competing retailers we show that rpm indeed limits the exercise of competition at both levels and can generate industry wide monopoly pricing the impact on prices depends on the extent of potential competition at either level as well as on the parties influence in determining the terms of the contracts our analysis sheds a new light on ongoing legal developments and is supported by recent empirical studies

tax incidence under imperfect competition comment abstract delipalla and o donnell 2001 contains a formula for the incidence of specific and ad valorem taxes in a conjectural variation oligopoly model with potentially asymmetric firms the formula is incorrect we derive the correct formula and provide a discussion of the error and its implications for empirical studies of pass through

measuring tax incidence an application to mortgage provision in the uk this paper derives measures of the average and marginal incidence of a tax or subsidy in imperfect competition in the context of the uk housing market we argue that one form of mortgage common in the uk but not elsewhere the endowment mortgage exists primarily because of the structure of taxation in the uk we estimate the determinants of the choice of the type of mortgage and the size of mortgage conditional on the choice using data from the building societies association on 43 000 individual mortgages taken out between 1985 and 1989 the estimated parameters are an input to the incidence measures results suggest that between 70 and 80 of the additional subsidy to endowment mortgages is captured by lenders rather than borrowers

welfare effects of taxation in oligopolistic markets this paper discusses how marginal costs of public funds are related to various market characteristics under imperfect competition under a quite general tax scheme these costs turn out to be lower the wider the firms product ranges the lower the degree of market concentration and the lower the degree of product differentiation moreover marginal costs of taxation are lower in bertrand markets compared to cournot markets in cases when marginal costs of public funds cannot easily be assessed we ask if pass through rates can provide useful information for policy makers the market characteristics that we analyze are shown to have opposite effects on pass through and marginal costs of public funds it is also demonstrated that the marginal cost of public funds is generally lower for ad valorem taxes than for unit taxes the main results are based on a linear demand system but a number of extensions confirm that our main results are reasonably robust

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

cost pass through in differentiated product markets the case of u s processed cheese in this paper we estimate a mixed logit model for demand in the u s processed cheese market the estimates are used to determine pass through rates of cost changes under different behavioral regimes we find that under collusion the pass through rates for all brands fall between 21 and 31 while under nash bertrand price competition the range of pass through rates is between 73 and 103 the mixed logit model provides a more flexible framework for studying pass through rates than the logit model since the curvature of the demand functions depends upon the empirical distribution of consumer types

efficiency enhancing taxation in two sided markets this paper examines the efficient provision of goods in two sided markets and characterizes optimal specific and ad valorem taxes we show that i a monopoly may have too high output compared to the social optimum ii output may be reduced by imposing negative value added taxes subsidy or positive specific taxes

are alcohol tax hikes fully passed through to prices evidence from alaska on 1 october 2002 the state of alaska increased taxes on malt beverages from 0 35 per gallon to 1 07 per gallon increased taxes on wine from 0 85 per gallon to 2 50 per gallon and increased taxes on distilled spirits from 5 60 per gallon to 12 80 per gallon the net effect is that the tax on a standard serving rose from about 3 cents for beer 2 cents for wine and 4 cents for spirits to a uniform tax of 10 cents per standard serving of each type of alcohol beverage this paper uses primary data on alcoholic beverage prices in alaska to study a very basic question what was the impact of the tax hikes on prices an alcohol tax hike is often viewed as a public health policy tool to discourage excessive alcohol consumption and alcohol related problems such as drunk driving the impact of a tax hike on alcoholic beverage prices is a key link in the chain of the causality from the tax to public health economic theory and previous empirical studies mainly of taxes on goods other than alcoholic beverages do not provide very much guidance on what to expect following a tax hike it is an empirical question to answer the question i conducted telephone surveys just before and a year after the tax hike of on premise and off premise alcohol retail establishments across alaska

oligopolistic competition and economic welfare a general equilibrium analysis of entry regulation and tax subsidy schemes abstract two contributions to the general equilibrium analysis of an oligopolistic economy with free entry are intended first we generalize the excess entry theorem to the effect that a marginal decrease in the number of oligopolistic firms from the free entry equilibrium level improves economic welfare second we explore the pareto improving tax subsidy schemes in an oligopolistic economy several self financing and pareto improving tax subsidy schemes will be identified in contrast with the preceding analysis by atkinson and stiglitz which focused on the long run incidence of corporate taxation we analyse the short run as well as long run welfare implications of various policies under generalized conditions

tax incidence under oligopoly a comparison of policy approaches abstract this paper presents a methodological approach for the analysis of tax incidence that encompasses familiar forms of taxation in a general and analytically convenient model in oligopolistic industries the performance of a tax depends on the sensitivity of the unit tax rate to changes in industry output output elastic tax schedules are less likely to be over shifted and have superior welfare properties relative to regulatory instruments that are less responsive to the equilibrium market quantity for revenue neutral tax reforms the finding of delipalla and keen 1992 that ad valorem taxes welfare dominate specific taxes under oligopoly is derived as a special case of this general result

the impact of a soda tax on prices evidence from french micro data abstractbased on an original data set of more than 500 000 non alcoholic beverage price records we evaluate the impact on consumer prices of the soda tax an excise on drinks with added sugar or sweetener introduced in france in january 2012 we adopt a difference in differences approach and find that the tax was gradually passed through to the prices of the taxed beverages after 6 months of its introduction it was fully shifted to soda prices and almost fully shifted to the prices of fruit drinks while the pass through for flavoured waters was incomplete we also find that the pass through was heterogeneous across brands and retail groups

structural analysis of manufacturer pricing in the presence of a strategic retailer consumer goods manufacturers usually sell their brands to consumers through common independent retailers theoretical research on such channel structures has analyzed the optimal behavior of channel members under alternative assumptions of manufacturer retailer interaction vertical strategic interaction research in empirical industrial organization has focused on analyzing the competitive interactions between manufacturers horizontal strategic interaction decision support systems have made various assumptions about retailer pricing rules e g constant markup category profit maximization the appropriateness of such assumptions about strategic behavior for any specific market however is an empirical question this paper therefore empirically infers 1 the vertical strategic interaction vsi between manufacturers and retailer 2 the horizontal strategic interaction hsi between manufacturers simultaneously with the vsi and 3 the pricing rule used by a retailer the approach is particularly appealing because it can be used with widely available scanner data where there is no information on wholesale prices researchers usually have no access to wholesale prices even manufacturers who have access to their own wholesale prices usually have limited information on competitors wholesale prices in the absence of wholesale prices we derive formulae for wholesale prices using game theoretic solution techniques under the specific assumptions of vertical and horizontal strategic interaction and retailer pricing rules we then embed the formulae for wholesale prices into the estimation equations while our empirical illustration is using scanner data without wholesale prices the model itself can be applied when wholesale prices are available early research on the inference of hsi among manufacturers in setting wholesale prices using scanner data e g kadiyali et al 1996 1999 made the simplifying assumption that retailers charge a constant margin this assumption enabled them to infer wholesale prices and analyze competitive interactions between manufacturers in this paper we show that this model is econometrically identical to a model that measures retail price coordination across brands hence the inferred cooperation among manufacturers could be exaggerated by the coordinated pricing category management done by the retailer we find empirical support for this argument this highlights the need to properly model and infer vsi simultaneously to accurately estimate the hsi when using data at the retail level functional forms of demand have been evaluated in terms of the fit of the model to sales data but recent theoretical research on channels lee and staelin 1997 tyagi 1999 has shown that the functional form has serious implications for strategic behavior such as retail passthrough while the logit and linear model implies equilibrium passthrough of less than 100 lee and staelin call this vertical strategic substitute vss the multiplicative model implies optimal passthrough of greater than 100 vertical strategic complement vsc because passthrough rates on promotions have been found to be below or above 100 chevalier and curhan 1976 armstrong 1991 we empirically test the appropriateness of the logit vss and the multiplicative vsc functional form for the data we perform our analysis in the yogurt and peanut butter categories for the two biggest stores in a local market we found that the vss implications of the logit fit the data better than the multiplicative model we also find that for both categories the best fitting model is one in which 1 the retailer maximizes category profits 2 the vsi is manufacturer stackelberg and 3 manufacturer pricing hsi is tacitly collusive the fact that the retailer maximizes category profits is consistent with theoretical expectations the inference that the vsi is manufacturer stackelberg reflects the institutional reality of the timing of the game retailers set their retail prices after manufacturers set their wholesale prices note that in the stores and product categories that we analyze the two manufacturers own the dominant brands with combined market shares of about 82 in the yogurt market and 65 in the peanut butter market the result is also consistent with a balance of power argument in the literature the finding that manufacturer pricing is tacitly collusive is consistent with the argument that firms involved in long term competition in concentrated markets can achieve tacit collusion managers use decision support systems for promotion planning that routinely make assumptions about vsi hsi and the functional form the results from our analysis are of substantive import in judging the appropriateness of assumptions made in such decision support systems

green tax reform in an oligopolistic industry oecd countries reduce or eliminate certain taxes when they introduce new environmental taxes the purpose of this paper is to analyze the incidence of such green tax reform in an oligopolistic industry the paper shows that a rise in taxes could result in the expansion of the aggregate pollution in the presence of a large technology gap the paper further shows that the government loses tax revenue as a result of the green tax reform if it continues to apply the same environmental standard this implies that the government needs to raise environmental standards to keep the existing level of public spending after a green tax reform

pass through in a concentrated industry empirical evidence and regulatory implications we estimate pass through with thirty years of data from a concentrated industry the empirical model accounts for oligopoly interactions yet facilitates estimation with aggregate price data robust statistical evidence supports that industry wide cost changes are more than completely transmitted downstream and that this industry pass through is largely unaected by competitive conditions the industry in question portland cement is a major focus of environmental and antitrust regulators we use our pass through estimates to i evaluate the welfare consequences of marketbased co2 regulation ii predict the magnitude and location of price eects due to a merger under review by antitrust authorities and iii corroborate the simulation based analysis of the epa regarding its impending regulation of local pollutants

the effects of a fat tax on french households purchases a nutritional approach this article assesses the effects of a fat tax on the nutrients purchased by french households across different income groups this is done by making a preliminary estimation of price elasticities using a complete demand system on household scanner data and by calculating nutrient elasticities using estimated price elasticities we find that a fat tax has small and ambiguous effects on nutrients purchased by french households and a slight effect on body weight in the short run with a greater effect in the long run such a tax generates substantial tax revenue but is highly regressive

more and cheaper haircuts after vat cut on the efficiency and incidence of service sector consumption taxes abstract consumption tax rates targeted at specific sectors are often reformed without any empirical knowledge about the efficiency of these policies this paper sheds light on tax incidence as well as the efficiency issue the potential for welfare improving reform by studying the impact of value added taxes vat on prices and quantities of labor intensive services i utilize a vat reform targeted at a specific service sector which creates a natural experiment set up the vat for hairdressing services in finland was reduced from 22 to 8 and the previous tax treatment still applied to other labor intensive services the choice of the treatment and control groups was exogenous to circumstances in finland since these groups were selected from a wider european setting the results suggest that hairdressers cut their prices only by half of what a complete pass through would have implied and that there was hardly any adjustment in equilibrium quantity due to the reform hairdressers were able to increase their profits significantly there is important heterogeneity in the results according to firm size

imperfect competition the marginal cost of public funds and public goods supply abstract this paper analyses the impact of changes in product market competition on the marginal cost of public funds mcpf and public goods supply when distortionary commodity taxes are used to raise revenue first less competition measured by a switch from bertrand to cournot conduct or a decrease in the elasticity of demand does not necessarily raise the mpcf second even if it does optimal public good supply does not necessarily fall the paper also presents a method for modelling bertrand and cournot competition in general equilibrium that may be of independent interest

subsidizing and taxing business procurement abstract this paper studies the effect of a subsidy or tax on a market where a downstream manufacturer uses a competitive tender to procure inputs from upstream suppliers subsidizing input production can result in input price decreases that are greater than the effective decrease in marginal costs that is overshifting occurs when the size of the subsidy is not too large the downstream firm can enjoy an increase in profits greater than the government expenditure on the subsidy a relatively weak sufficient condition for these results to hold is that suppliers earn a positive profit margin on the marginal unit sold before taking into account any subsidy payment stronger sufficient conditions tailored to each result are provided

empirical evidence on the role of non linear wholesale pricing and vertical restraints on cost pass through abstract how a cost shock is passed through to final consumer prices may relate to nominal price stickiness and rigidities the existence of nonadjustable cost components strategic markup adjustments or other contract terms along the supply distribution chain this paper presents a simple framework to assess the potential role of nonlinear pricing contracts and vertical restraints such as resale price maintenance or wholesale price discrimination in the supply chain in explaining the degree of pass through from upstream cost shocks in the ground coffee category to downstream retail prices we find that resale price maintenance increases pass through rate

econometric models of asymmetric price transmission abstract in this paper we review the existing empirical literature on price asymmetries in commodities providing a way to classify and compare different studies that are highly heterogeneous in terms of econometric models type of asymmetries and empirical findings relative to the previous literature this paper is novel in several respects first it presents a detailed and updated survey of the existing empirical contributions on price asymmetries in the transmission mechanism linking input prices to output prices second this paper presents an extension of the traditional distinction between long run and short run asymmetries to new categories of asymmetries such as contemporaneous impact distributed lag effect cumulated impact reaction time equilibrium and momentum equilibrium adjustment path regime effect regime equilibrium adjustment path each empirical study is then critically discussed in the light of this new classification of asymmetries third this paper evaluates the relative merits of the most popular econometric models for price asymmetries namely autoregressive distributed lags partial adjustments error correction models regime switching and vector autoregressive models finally we use the meta regression analysis to investigate whether the results of asymmetry tests are not model invariant and find which additional factors systematically influence the rejection of the null hypothesis of symmetric price adjustment the main results of our survey can be summarized as follows i each econometric model is specialized to capture a subset of asymmetries ii each asymmetry is better investigated by a subset of econometric models iii the general significance of the f test for asymmetric price transmission depends mainly on characteristics of the data dynamic specification of the econometric model and market characteristics overall our empirical findings confirm that asymmetry in all its forms is very likely to occur in a wide range of markets and econometric models

corrective tax and subsidy policies in economies with bertrand competition abstract this paper shows how we can correct market failure due to imperfect competition by using taxes and subsidies the analysis is carried out at the general equilibrium level and the importance of objective demand curves is stressed the main conclusions are first it is possible to tax the economy back to the walrasian equilibrium by using linear taxes and subsidies second the welfare theorem holds in an imperfectly competitive economy with corrective taxes and subsidies third a competitive equilibrium can also be achieved by the use of ad valorem taxes and specific output subsidies

vertical relationships between manufacturers and retailers inference with limited data in this paper different models of vertical relationships between manufacturers and retailers in the supermarket industry are compared demand estimates are used to compute price cost margins for retailers and manufacturers under different supply models when wholesale prices are not observed the purpose is to identify the set of margins compatible with the margins obtained from estimates of cost and to select the model most consistent with the data among non nested competing models the models considered are 1 a simple linear pricing model 2 a vertically integrated model and 3 a variety of alternative strategic supply scenarios that allow for collusion non linear pricing and strategic behaviour with respect to private label products using data on yogurt sold in several stores in a large urban area of the u s the results imply that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain this is consistent with non linear pricing by the manufacturers or high bargaining power of the retailers

newspaper differentiation and investments in journalism the role of tax policy many countries levy reduced rate indirect taxes on newspapers with proclaimed policy goals of stimulating investment in journalism and ensuring low newspaper prices however by taking into account the fact that the media industry operates in two sided markets we find the paradoxical result that the consequences of a low tax regime might be quite the opposite we also show that the low tax regime tends to increase newspaper differentiation if the advertising market is relatively small the newspapers might invest too little in journalism and be too differentiated from a social point of view in this case a tax increase will be welfare enhancing

a control function approach to endogeneity in consumer choice models abstract endogeneity arises for numerous reasons in models of consumer choice it leads to inconsistency with standard estimation methods that maintain independence between the model s error and the included variables the authors describe a control function approach for handling endogeneity in choice models observed variables and economic theory are used to derive controls for the dependence between the endogenous variable and the demand error the theory points to the relationships that contain information on the unobserved demand factor such as the pricing equation and the advertising equation the authors approach is an alternative to berry levinsohn and pakes s 1995 product market controls for unobserved quality the authors apply both methods to examine households choices among television options including basic and premium cable packages in which unobserved attributes such as quality of programming are expected to be correlated with price without correcting for endogeneity aggregate d

by ounce or by calorie the differential effects of alternative sugar sweetened beverage tax strategies the obesity epidemic and excessive consumption of sugar sweetened beverages have led to proposals of economics based interventions to promote healthy eating in the united states targeted food and beverage taxes and subsidies are prominent examples of such potential intervention strategies this paper examines the differential effects of taxing sugar sweetened beverages by calories and by ounces on beverage demand to properly measure the extent of substitution and complementarity between beverage products we developed a fully modified distance metric model of differentiated product demand that endogenizes the cross price effects we illustrated the proposed methodology in a linear approximate almost ideal demand system although other flexible demand systems can also be used in the empirical application using supermarket scanner data the product level demand model consists of 178 beverage products with combined market share of over 90 the novel demand model outperformed the conventional distance metric model in non nested model comparison tests and in terms of the economic significance of model predictions in the fully modified model a calorie based beverage tax was estimated to cost 1 40 less in compensating variation than an ounce based tax per 3 500 beverage calories reduced this difference in welfare cost estimates between two tax strategies is more than three times as much as the difference estimated by the conventional distance metric model if applied to products purchased from all sources a 0 04 cent per kcal tax on sugar sweetened beverages is predicted to reduce annual per capita beverage intake by 5 800 kcal

asymmetric correlations in gold and other financial markets abstractin this article we implement a recently developed statistical method to test asymmetries in cross asset correlations focusing in particular on the gold market our empirical results provide evidence that gold exhibits asymmetric correlations with stocks and the u s dollar but not with bonds furthermore splitting the sample into three characteristic periods we find that exceedance correlations exhibit substantial time variation even in similar market tensions for same pairs of assets our findings imply that investors and fund managers should take into account the asymmetric dependence structure which depends on the upside or downside of the market

accounting for incomplete pass through recent theoretical work has suggested a number of potentially important factors in causing incomplete pass through of exchange rates to prices including markup adjustment local costs and barriers to price adjustment we empirically analyze the determinants of incomplete passthrough in the coee industry the observed pass through in this industry replicates key features of pass through documented in aggregate data prices respond sluggishly and incompletely to changes in costs we use microdata on sales and prices to uncover the role of markup adjustment local costs and barriers to price adjustment in determining incomplete pass through using a structural oligopoly model that nests all three potential factors the implied pricing model explains the main dynamic features of short and long run pass through local costs reduce long run pass through by a factor of 59 relative to a ces benchmark markup adjustment reduces pass through by an additional factor of 33 where the extent of markup adjustment depends on the estimated super elasticity of demand the estimated menu costs are small 0 23 of revenue and have a negligible eect on long run pass through but are quantitatively successful in explaining the delayed response of prices to costs we nd that delayed passthrough in the coee industry occurs almost entirely at the wholesale rather than the retail level

lechatelier samuelson principle in games and pass through of shocks abstract the lechatelier samuelson principle states that as a reaction to a shock an agent s short run adjustment of an affected action is smaller than its long run adjustment when the agent can also adjust other related actions we extend the principle to strategic environments where the long run adjustment also accounts for other players adjusting their strategies we show that the principle holds for supermodular games strategic complements satisfying monotone comparative statics and provide sufficient conditions for the principle to hold in games of strategic substitutes heterogeneity we discuss the principle s implications for cost pass through of multiproduct firms

commodity taxation and imperfect competition a note on the effects of entry abstract this paper looks at the effects of allowing the number of firms to vary in seade s model of oligopoly and taxation we show that the normative and positive consequences of a specific commodity tax are affected by entry in significant ways

tax incidence with strategic firms in the soft drink market abstract because soft drink sd consumption is considered to be a contributor to the epidemic of obesity there is a growing interest in evaluating the impact on sd consumption of alternative tax policies in this paper we propose a methodology to evaluate the impact of taxation of a food market taking into account the strategic price response of both manufacturers and retailers we apply this methodology to the french sd market and simulate the impacts of ad valorem and excise taxes we find that firms behave differently when facing an ad valorem tax or an excise tax an excise tax is overshifted to consumer prices while an ad valorem tax is undershifted to consumer prices we find that an excise tax based on the sugar content of sd is the most effective at reducing sd consumption our results also indicate that ignoring strategic pricing by firms leads to misestimations of the impact of taxation by between 15 and 40 depending on the products and the tax implemented in the short term that is ignoring positive long term health effects a 9 cents l excise tax has a small negative welfare effect about 1 person year

the effects of soft drink taxes on child and adolescent consumption and weight outcomes abstract childhood and adolescent obesity is associated with serious adverse lifetime health consequences and its prevalence has increased rapidly soft drink consumption has also expanded rapidly so much so that soft drinks are currently the largest single contributors to energy intake in this paper we investigate the potential for soft drink taxes to combat rising levels of child and adolescent obesity through a reduction in consumption our results based on state soft drink sales and excise tax information between 1989 and 2006 and the national health examination and nutrition survey suggest that soft drink taxation as currently practiced in the united states leads to a moderate reduction in soft drink consumption by children and adolescents however we show that this reduction in soda consumption is completely offset by increases in consumption of other high calorie drinks

unit versus ad valorem taxes monopoly in general equilibrium abstract we show that if a monopoly sector is imbedded in a general equilibrium framework and profits are taxed at one hundred percent then unit specific taxation and ad valorem taxation are equivalent on the set of pareto optima

tacit collusion and international commodity taxation the paper employs a model of dynamic price competition to study how international commodity taxation affects the stability of collusive agreements when producers in an international duopoly agree not to export into each other s home market we consider both the choice of international tax principle and the harmonization of tax rates and differentiate between a setting where production costs differ between countries and a setting where exogenous tax rate differentials are the only asymmetry the conclusions derived from this model differ strongly from those obtained under the assumption of competitive product markets

comparing specific and ad valorem pigouvian taxes and output quotas when the production or use of a good creates an external cost an unregulated market produces a socially inefficient quantity of output one remedy for this inefficiency is to impose a pigouvian tax equal to the marginal external damage associated with the good in many circumstances privately optimizing agents facing a pigouvian tax make decisions that are consistent with the maximization of social welfare

ad valorem platform fees indirect taxes and efficient price discrimination this article explains why platforms such as amazon and visa rely predominantly on ad valorem fees fees which increase proportionally with transaction prices it also provides a new explanation for why ad valorem sales taxes are more desirable than specific taxes the theory rests on the ability of ad valorem fees and taxes to achieve efficient price discrimination given that the value of a transaction to buyers tends to vary proportionally with the cost of the good traded

indirect taxation and cournot equilibrium we analyse a cournot model of oligopoly in an industry which is subject to indirect taxation we consider value added as well as excise taxes we allow for various types of demand and cost conditions as well as cost differences across firms as the tax is raised two types of outcomes can prevail on the one hand the net price can increase which is shown to lead to an increase in market share of high cost firms on the other hand the net price can fall in which case efficiency is rewarded in that low cost firms gain market share this latter outcome which accords with intuition will obtain in most instances it is more likely to occur i with vat rather than with an excise tax ii with concave rather than convex demand and iii with decreasing rather than increasing marginal cost finally we show that an increase in vat can lead to higher profits for low cost firms provided cost differences across firms are large enough