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Tax responses in platform industries

Kind, Hans Jarle; Koethenbuerger, Marko; Schjelderup, Guttorm
Working paper
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URI
http://hdl.handle.net/11250/163190
Date
2009-07
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  • Discussion papers (SAM) [676]
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.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2009:10

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