Cross-Border Shopping and Commodity Tax Competition in Imperfectly Competitive Markets
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This paper studies price competition between two firms and tax competition between two governments by using a spatial model under the assumption of imperfect competition. With cross-border shopping, consumers try to take advantage of price or tax differentials and each government which maximizes the tax revenue on the basis of Leviathan model may attempt to induce cross-border shoppers into its own country by lowering its own tax rate than the competitors. In this Nash noncooperative game, there exists symmetric or asymmetric Nash equilibrium which depends on cost structures. In particular, tax differential between governments implies `asymmetric Nash equilibrium' in a noncooperative game. In our model, assuming imperfect competition and in particular, considering the case of different production costs, it is shown that tax differential stems from the difference in costs between two firms. This difference in tax rates induced by cost differential provides a major incentive not only for consumers to engage in cross-border shopping but also for governments to compete in taxes noncooperatively.
Abstract
This paper studies price competition between two firms and tax competition between two governments by using a spatial model under the assumption of imperfect competition. With cross-border shopping, consumers try to take advantage of price or tax differentials and each government which maximizes the tax revenue on the basis of Leviathan model may attempt to induce cross-border shoppers into its own country by lowering its own tax rate than the competitors. In this Nash noncooperative game, there exists symmetric or asymmetric Nash equilibrium which depends on cost structures. In particular, tax differential between governments implies `asymmetric Nash equilibrium' in a noncooperative game. In our model, assuming imperfect competition and in particular, considering the case of different production costs, it is shown that tax differential stems from the difference in costs between two firms. This difference in tax rates induced by cost differential provides a major incentive not only for consumers to engage in cross-border shopping but also for governments to compete in taxes noncooperatively.
참고문헌 (28)
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