According to a report from the Foundation for Taxpayer and Consumer Rights, gasoline costs twice as much in Europe as in the United States because taxes are higher in Europe. However, the amount per gallon net of taxes that U. S. consumers pay is higher than that paid by Europeans (24¢ per gallon net of taxes). The report concludes that “U. S. motorists are essentially subsidizing European drivers, who pay more for taxes but substantially less into oil company profits” (Tom Doggett, “US Drivers Subsidize European Pump Prices,” Reuters, August 31, 2006). Given that oil companies have market power and can price discriminate across countries, is it reasonable to conclude that U. S. consumers are subsidizing Europeans? Explain your answer.
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