A Tax Can Increase Profit of a Monopolist or a Monopoly-like Firm: a Fiction or Distinct Possibility?

• Chin W. Yang ^[1] ; Hui Wen Cheng ^[2] ; Ching Wen Chi ^[2] ; Bwo-Nung Huang ^{[3] [4]}
  1. [1] Clarion University

     Clarion University

     Borough of Clarion, Estados Unidos

     
  2. [2] Ming Chuan University

     Ming Chuan University

     Taoyuan District, Taiwán

     
  3. [3] National Chung Cheng University

     National Chung Cheng University

     W. District, Taiwán

     
  4. [4] National Chin-Yi University of Technology

     National Chin-Yi University of Technology

     Taiwán

     

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• Localización: Hacienda Pública Española / Review of Public Economics, ISSN 0210-1173, Nº 216, 2016, págs. 39-60
• Idioma: inglés
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• Resumen

  • The purpose of this paper is to reexamine the long-held theory that a tax reduces profit under monopoly or monopoly-like market structure. To present the paradox, we expand the switching price elasticity theory developed by Greenhut-Hwang-Ohta to show that the after-tax profit may very well increase in a monopoly or a tight-knit cartel. The result show that after-tax profit can actually increase in a monopoly or monopoly-like market without resorting to conjectural variation or product quality often used in oligopoly. To verify the paradox, simple numerical examples and commonly-used mathematical demand functions are employed.