Abstract
The prohibition of state aid in an integrated market such as the European Community is analyzed in a model where firms produce differentiated products and market structure is either Cournot or Bertrand oligopoly. State aid is financed by distortionary taxation so the opportunity cost of government revenue exceeds unity. Under both Cournot and Bertrand oligopoly, if products are sufficiently close substitutes then there exists a range of values for opportunity cost where governments give state aid and where the prohibition of state aid will increase aggregate welfare. With sufficiently differentiated products, the prohibition of state aid will reduce aggregate welfare.
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Collie, D.R. Prohibiting State Aid in an Integrated Market: Cournot and Bertrand Oligopolies with Differentiated Products. Journal of Industry, Competition and Trade 2, 215–231 (2002). https://doi.org/10.1023/A:1021532508081
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DOI: https://doi.org/10.1023/A:1021532508081