Comparison between specific taxation and volume quotas in a free entry Cournot oligopoly

We revisit the classic discussion of the comparison between tax and quota, but in a free-entry Cournot oligopoly. We investigate a quantity ceiling regulation as a quota policy. We find that tariff-quota equivalence holds if the firms are symmetric and the number of firms is given exogenously. However the equivalence does not hold and taxes dominate quotas in the free entry market because quota can increases the number of entering firms and increases the loss caused by excessive entries. Copyright Springer-Verlag Wien 2014