Indirect Taxes in Oligopoly in Presence of Licensing Opportunities

Abstract

This paper considers the relative efficiency of unit tax and ad valorem tax in a Cournot duopoly market in the presence of licensing opportunities after the announcement of the tax rates by the government. In case of fixed-fee licensing, if the unit cost difference of the firms is low and tax revenue of the government is high, then unit tax is more efficient than the ad valorem tax. If tax revenue of the government is low, then ad valorem tax is more efficient than unit tax. Ad valorem tax is more efficient than unit tax in the case of royalty licensing.