In "Market Power and the Laffer Curve" we characterize the trade-off between consumption tax rates and tax revenue -- the Laffer curve -- while allowing for re-optimization by both consumers and firms. We show that firms with market power respond to an increase (decrease) in the tax rate by decreasing (increasing) their prices. This flattens and shifts the Laffer curve to the right ("Firm Response" in the figure). The implications are significant -- limiting government to attain only 13% of the incremental tax revenue predicted under the common assumption of perfect competition. Upstream collusion exacerbates these effects. We conclude that effective taxation policy must account for the behavioral response of not just consumers but also firms -- a theoretical point made by Musgrave (1959), Bishop (1968), and Buchanan (1969) which we show is quantitatively important.

Publications

``Market Power and the Laffer Curve'' with Eugenio Miravete and Katja Seim. May 2018. Forthcoming at Econometrica.
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``Fuel Taxation, Emissions Policy, and Competitive Advantage in the Diffusion of European Diesel Automobiles'' with Eugenio Miravete and Maria J. Moral. January 2018. Forthcoming at The RAND Journal of Economics.
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Previous Version with Petrin-Seo Estimation: DOWNLOAD

``Sincerest Form of Flattery? Product Innovation and Imitation in the European Automobile Industry.'' May 2018. Conditionally Accepted at The Journal of Industrial Economics.
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Working Papers

One Markup to Rule Them All: Taxation by Liquor Pricing Regulation
(with Eugenio Miravete and Katja Seim)
NEW VERSION - DOWNLOAD HERE!

Rules versus Discretion in the Protection of Intellectual Property
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The Effects of Coordinating National Patent Policies
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Works in Progress

Innovation, Imitation, and Outsourcing in the U.S. Semiconductor Industry
Draft coming soon!

Strategic Innovation Policy
Draft coming soon!

Brand Value and Product Recalls in the Automobile Industry
(with Anson Soderbery)