Tax Responses in Platform Industries

Hans Jarle Kind, Marko Koethenbuerger and Guttorm Schjelderup
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Guttorm Schjelderup: Norges Handelshøyskole, Bergen

No 2010-02, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: Two-sided platform firms serve distinct customer groups that are connected through interdependent demand, and include major businesses such as the media industry, banking, and the software industry. A well known result of tax incidence is that consumers of a more heavily taxed good pay a higher price and thus buy less of the good. The present paper shows that this result need not hold in a two-sided market. On the contrary, a higher ad valorem tax may lower end-user prices and spur sales. Thus, two-sided platform firms may not at all engage in tax shifting via price increases. We further show that a higher ad valorem tax may undermine a firm's incentive to differentiate its product from that of its competitors. Finally, we demonstrate that the effects of increasing specific taxes may be the opposite of those of increasing value added taxes.

JEL-codes: D4 D43 H21 H22 L13 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-03
New Economics Papers: this item is included in nep-acc, nep-mic and nep-pbe
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Citations: View citations in EconPapers (17)

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Journal Article: Tax responses in platform industries (2010)
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