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Taxation in Two-Sided Markets

Author

Listed:
  • Kind, Hans Jarle

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Koethenbuerger, Marko

    (Center for Economic Studies, Ludwig-Maximilians-Universität)

  • Schjelderup, Guttorm

    (Dept. 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.

Suggested Citation

  • Kind, Hans Jarle & Koethenbuerger, Marko & Schjelderup, Guttorm, 2007. "Taxation in Two-Sided Markets," Discussion Papers 2007/3, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2007_003
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    File URL: http://hdl.handle.net/11250/163900
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    References listed on IDEAS

    as
    1. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "The efficiency of indirect taxes under imperfect competition," Journal of Public Economics, Elsevier, vol. 81(2), pages 231-251, August.
    2. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "Tax incidence in differentiated product oligopoly," Journal of Public Economics, Elsevier, vol. 81(2), pages 173-192, August.
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    Cited by:

    1. Hans Jarle Kind & Guttorm Schjelderup & Frank Staehler, 2006. "Newspapers and Advertising: The Effects of Ad-Valorem Taxation under Duopoly," Working Papers 0609, University of Otago, Department of Economics, revised Dec 2006.
    2. Anderson, Simon P. & Foros, Øystein & Kind, Hans Jarle, 2012. "Product quality, competition, and multi-purchasing," Discussion Papers 2012/9, Norwegian School of Economics, Department of Business and Management Science.
    3. Kind, Hans Jarle & Koethenbuerger, Marko & Schjelderup, Guttorm, 2008. "Efficiency enhancing taxation in two-sided markets," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1531-1539, June.
    4. Robert A. Ritz, 2014. "A new version of Edgeworth's taxation paradox," Oxford Economic Papers, Oxford University Press, vol. 66(1), pages 209-226, January.
    5. Hans Jarle Kind & Marko Köthenbürger & Guttorm Schjelderup, 2009. "Should Utility-Reducing Media Advertising be Taxed?," CESifo Working Paper Series 2589, CESifo.

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    More about this item

    Keywords

    Two-sided markets; ad-valorem taxes; specific taxes; imperfect competition; industrial organization;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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