Scandinavian Working Papers in Economics

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

No 2009/1: Profit-shifting in Two-sided Markets

Dirk Schindler () and Guttorm Schjelderup ()
Additional contact information
Dirk Schindler: Universit├Ąt Konstanz, Postal: Universit├Ąt Konstanz , Fach D133 , 78457 Konstanz, 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: 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

JEL-codes: D21; L24

13 pages, April 14, 2009

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