International Journal of Business and Economics Volume 15, No. 2 December, 2016

Taxation or Subsidization Policy for New Technology Adoption in Oligopoly

Masahiko Hattori

Faculty of Economics, Doshisha University, Japan

Yasuhito Tanaka

Faculty of Economics, Doshisha University, Japan

Abstract

Adoption of new technology by firms is very important for economic growth of a country. However, it may be insufficient or excessive in less competitive industries from the point of view of social welfare. Then, subsidization or taxation by the government is necessary. We present an analysis about subsidy or tax policy for adoption of new technology in an oligopoly with a homogeneous good. The unit cost with the new technology is lower than that with the present technology, but each firm must expend a fixed set-up cost to adopt and use the new technology. We will show that if the number of firms is small, and the set-up cost is large, subsidization to promote adoption of the new technology may be the optimum policy. However, if the number of firms is not so small, or the set-up cost is not so large, taxation to prevent adoption of the new technology is likely to be the optimum policy.

Keywords：subsidy or tax policy, new technology adoption, oligopoly.

JEL Classifications：D43, L13.

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