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Assuming a perfectly spherical cow, if the tax is based on a percent of profit, the company can and will raise prices (if the market will bear it) to ensure tha
by metiscus 6y ago
Assuming a perfectly spherical cow, if the tax is based on a percent of profit, the company can and will raise prices (if the market will bear it) to ensure that their gross profit numbers remain constant or continue to grow.
- Retric 6y agoThat assumes they are intentionally making less profit than possible at stage one. If even monopolies have limits, if the cheapest cellphone cost 2,000$ a month few people would have them thus lowering prices increases profits after a point.
- robjan 6y agoIf the company charges higher "just because" then it creates an inefficiency in the market and allows new products to enter the market at a lower price point. If they charge higher due to taxes it doesn't create this gap.
- Retric 6y agoMonopolies can always lower prices at any time a new player enters the market. Theoretical future competition has zero impact on current prices. Just look at what happens to drug prices when the original patent expires. Similarly, ISP prices maintain high until just before a new options become available. Simply announcing Google fiber was eventually going to enter a city did not instantly lower prices. Sure, eventually that happened but ISP continued to charge high prices until forced to lower them.