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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 2009/1:
Profit-shifting in Two-sided Markets

Dirk Schindler () and Guttorm Schjelderup ()

Abstract: We investigate how multinational two-sided platform firms set their prices on intra firm transactions. Two-sided platform firms derive income from two customer groups that are connected through at least one positive network externality from one group to the other. A main finding is that even in the absence of taxation transfer prices deviate from marginal cost of production. A second result of the paper is that it is inherently difficult to establish arm's length prices in two-sided markets. Finally, we find that differences in national tax rates may be welfare enhancing despite the use of such prices as a profit shifting device.

Keywords: Multinational enterprises; two-sided markets; profit shifting; (follow links to similar papers)

JEL-Codes: D21; L24; (follow links to similar papers)

13 pages, April 14, 2009

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