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Department of Business and Management Science, Norwegian School of Economics (NHH) Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)

No 2007/3:
Taxation in Two-Sided Markets

Hans Jarle Kind (), Marko Koethenbuerger () and Guttorm Schjelderup ()

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 monopolistís 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.

Keywords: Two-sided markets; ad-valorem taxes; specific taxes; imperfect competition; industrial organization; (follow links to similar papers)

JEL-Codes: D40; D43; H21; H22; L13; (follow links to similar papers)

31 pages, February 13, 2007

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