December 2005
This paper shows that consumers may buy more of a taxed good if it is sold by a two-sided platform firm. Two-sided platform industries serve distinct customer groups that are connected through interdependent demand, and include major businesses such as the media industry (newspapers/magazines and advertisers), banking (cardholder and merchant), and the software industry (users and application developers). The paper compares ad-valorem and specific taxes and shows that they may have opposite effects on quantities sold, and that the ad-valorem tax - the most commonly used tax throughout the OECD - has effects on prices and quantities not previously recognized.
Also published in: forthcoming: Oxford Economic Paper, new title: 'Tax Responses of Platform Industries'
Keywords: two-sided markets, ad-valorem taxes, specific taxes
JEL Classification: [D400] Market Structure and Pricing : General [D430] Market Structure and Pricing : Oligopoly and Other Forms of Market Imperfection [H210] Taxation and Subsidies : Efficiency; Optimal Taxation [H220] Taxation and Subsidies : Incidence [L130] Oligopoly and Other Imperfect Markets
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Hans Jarle Kind Hans.Kind@nhh.no Marko Köthenbürger marko.koethenbuerger@econ.ku.dk Guttorm Schjelderup guttorm.schjelderup@nhh.no
