Taxation in Two-Sided Markets

Hans Jarle Kind (), Marko Koethenbuerger and Guttorm Schjelderup ()

No 2007/3, Discussion Papers from Department of Finance and Management Science, Norwegian School of Economics and Business Administration

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 textbook result in one-sided markets is that a government may increase a monopolist’s output and reduce the deadweight loss by subsidizing output. The present paper shows that this result need not hold in a two-sided market. On the contrary, a higher advalorem tax rate - rather than a subsidy - could increase output and enhance welfare.

Keywords: Two-sided markets; ad-valorem taxes; specific taxes; imperfect competition; industrial organization (search for similar items in EconPapers)
JEL-codes: D40 D43 H21 H22 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic, nep-net, nep-pbe and nep-pub
Date: 2007-02-13
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Working Paper: Taxation in Two-Sided Markets (2006)
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