D60 - Welfare Economics: GeneralReturn

This paper uses a duopoly model with horizontally differentiated products to analyse how price collusion in the presence of a uniform tax affects market equilibrium. Moreover, this paper investigates the effect of price collusion on social welfare and the government's decision in setting the optimal tax. We show that in the presence of a uniform tax, instead of bringing social welfare down as is traditionally believed, price collusion affects government policy implication. We further show that firms still prefer colluding rather than competing, for which the government's policy decision becomes the key point. By allowing the optimal tax to be negative, we find that under Bertrand competition the government can impose a positive, zero or negative tax on firms depending on the level of the product differentiation. There is a tendency that the more heterogeneous the products, the more subsidies will be given. Under price collusion, the government always subsidises firms regardless of the degree of product differentiation. Finally, we show that when the products are sufficiently differentiated, the government will subsidise firms more under collusion than they will under Bertrand. In short, firms can use price collusion to induce the government to subsidise them.

The main objective of the paper is to contribute to practical applicability of the CBA in the agricultural sector by exploring the chances to estimate Czech social values of selected agricultural commodities using available statistical data. More specifically, we try to analyse for which commodities secondary data sets are available from which we may deduce the estimates of shadow price ratios, then to estimate SPRs for selected agricultural commodities and to analyse and discuss the applicability of such estimates in practical appraisal with respect to theoretically ideal measures and resulting available measures as well as with respect to the situation in which the CBA analyst typically is. We selected the following commodities: poultry, pigs, bulls, milk, rapeseed, maize, barley and wheat as items more suitable for SPR estimates mostly because of the data availability and the internal homogeneity of the items, which was closer to the theoretically required values than for other commodities. Under additional simplifying assumptions, we estimated SPR proxies for the particular commodities and finally summarized the pros and cons for application of SPR alternatives.