Tax responses in platform industries
Working paper
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Date
2009-07Metadata
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- Discussion papers (SAM) [659]
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 EconomicsSeries
Discussion paper2009:10