26. Business Cross-Subsidy Regulations

Businesses have the right to cross-subsidize any of their products (whose market shares stand and remain at less that 20% within political jurisdictions no smaller than counties) with revenues from other profitable products (or any other source) without any restrictions if there are at least 4 total suppliers of similar products serving the same county. If there are only 3 total suppliers, a maximum of 30% market share should be allowed before cross-subsidy restrictions are imposed. When 2 total suppliers exist, the critical percentage should be 40% before cross-subsidy restrictions are imposed. The reason for a slightly lower than proportional percentage of the market share is to help restrict subsidized products from achieving a proportional market share (or larger) given that they are clearly not competing within a true free market or on an equal footing with their competitors. No company should be allowed to sell a subsidized product without penalty if their market share is more than the allowable percentages stated under this proposal.

Constructing the Tax

Two statistics should be used to formulate this penalty.

  • The first statistic would be the dollar amount to which a company subsidizes the product in question. Thus, a determination regarding the subsidized dollar amount for each product must be made either through the company releasing such information or by having a court decide on an estimated amount of the subsidy. The dollar amount of the subsidy would then constitute the bulk of the penalty.
  • The second statistic would be the amount (in percentage points) by which a company exceeds its allowable market share under this proposal. This same percentage figure would be multiplied by the product’s selling price, and the resulting dollar amount would constitute the second portion of this penalty.

The resultant dollar amounts from both statistics obtained above would constitute the total amount of this cross-subsidy penalty.

Example

For example, let’s say that there are 4 companies offering widgets (each one costing $200 to produce) and each company has a proportional market share of 25%. (Remember, a maximum market share of 20% is allowed with 4 suppliers.) One company, however, subsidizes its widgets by 15% ($30, in this example) and has a market share that is 5% above that which is allowed by this proposal. Because of these two factors, this company would be subjected to a cross-subsidy penalty tax of $40. This amount is determined by taking the product’s subsidized amount ($30) and, adding it to 5% (the product’s excessive market share percentage) of the product’s selling price ($10).


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