Tax Responses in Platform Industries

Hans Jarle Kind, Marko Koethenbuerger, Guttorm Schjelderup
2009 Social Science Research Network  
Two-sided platform ...rms 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.
more » ... two-sided platform ...rms may not at all engage in tax shifting via price increases. We further show that a higher ad valorem tax may undermine a ...rm's incentive to di¤erentiate its product from that of its competitors. Finally, we demonstrate that the e¤ects of increasing speci...c taxes may be the opposite of those of increasing value added taxes.
doi:10.2139/ssrn.1554834 fatcat:kqdczdhg4bagzioxwygdhh77s4