search query: @freeterm procurement / total: 13
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| Author: | Asker, J. |
| Title: | Subsidizing (and taxing) business procurement |
| Journal: | Journal of Public Economics
2008 : JUL, VOL.92:7, p. 1629-1643 |
| Index terms: | auctions imperfect competition subsidies taxation industries |
| Freeterms: | procurement vertical markets |
| Language: | eng |
| Abstract: | This paper deals with the effect of a subsidy or tax on a market with a downstream manufacturer using a competitive tender to procure inputs from upstream suppliers. Subsidizing input production can result in input price decreases being greater than the effective decrease in marginal costs, that is, overshifting occurs. When the size of the subsidy is not too large, the downstream firm can enjoy an increase in profits greater than the government expenditure on the subsidy. A relatively weak sufficient condition for these results to hold is that suppliers earn a positive profit margin on the marginal unit sold, before taking into account any subsidy payment. There are provided stronger sufficient conditions, tailored to each result. |
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