In 1946, Coase rejected Hotelling-Lerner's solution for financing a nationalized
monopoly on the grounds that any tax structure could distort relative prices. In
monopoly
where two-part tariffs are infeasible, Coase suggested average cost pricing
as a noninfenor solution to the above policy. This article shows that, in a general
equilibrium model, it is possible to choose a distortionary Hotelling-Lerner's tax
policy that is superior to average cost pricing.
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