Scandinavian Working Papers in Economics
Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science
No 2007/3: Taxation in Two-Sided Markets
Hans Jarle Kind (), Marko Koethenbuerger () and Guttorm Schjelderup ()
Additional contact information
Hans Jarle Kind: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Marko Koethenbuerger: Center for Economic Studies, Ludwig-Maximilians-Universität, Postal: Ludwig-Maximilians-Universität, Center for Economic Studies, Schackstr. 4, 80539 Munich, Germany
Guttorm Schjelderup: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
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 monopolist’s 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
JEL-codes: D40; D43; H21; H22; L13
31 pages, February 13, 2007
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