The Musgravian Transformation in the Two-part Tariffs and Other Monopoly Models

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In this paper, we prove for the first time that a demand ad valorem tax on commodity price is equivalent to the cost payment tax in the two-part tariff model if such a tax is imposed on both admission charge and user’s fee. The same result is found in the third-degree price discrimination model. However, this property is not preserved in the rate-of-return-regulated monopoly model. It relates to the importance of the choice of tax policies not only in a pure monopoly, but also in two-part tariff, third-degree price discrimination and regulated monopoly models.