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Optimal Tariffs on a Monopoly Platform in Two-sided Markets

Kuo-Feng Kao and Hiroshi Mukunoki

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: This study investigates how countries set import tariffs on a monopoly platform’s product in a two-sided market. Consumers and service providers interact through the platform’s product, wherein service providers’ entries spur product demand and larger demand invokes more entries. Optimal import policies for importing countries are subsidies when network externalities and the number of importing countries are large, while they are tariffs when they are small. There is a case where optimal non-cooperative policies are import tariffs, but optimal cooperative policies are import subsidies. These results suggest that promoting digital trade and cooperative actions in tariff settings is important to advance trade liberalization for the platform’s products.

Pages: 21 pages
Date: 2022-07
New Economics Papers: this item is included in nep-com, nep-int and nep-reg
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