Original Research
Duopoly competition for rational addicts
South African Journal of Economic and Management Sciences | Vol 7, No 2 | a1383 |
DOI: https://doi.org/10.4102/sajems.v7i2.1383
| © 2004 SF Koch
| This work is licensed under CC Attribution 4.0
Submitted: 27 April 2004 | Published: 28 April 2004
Submitted: 27 April 2004 | Published: 28 April 2004
About the author(s)
SF Koch, University of Pretoria, South AfricaFull Text:
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This paper provides an examination of an oligopoly market for addictive commodities, specifically cigarettes. The model is characterized by overlapping generations of consumers and differentiated products. A price equilibrium, which is both stationary and symmetric, is characterized. The model accounts for many of the features within the South African tobacco market. Although excise taxes rose in South Africa, and the actual price in the market rose by more than the increase in the excise tax, the model shows that the increase in the price beyond the excise tax was caused by factors other than the change in the tax rate. The model also points to potential empirical problems associated with estimating cigarette market outcomes, due to the fact that the combination of market structure and addiction may greatly impact the assumed exogeneity of the prices used in the analysis.
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