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Tax responses in platform industries

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  • Hans Jarle Kind
  • Marko Koethenbuerger
  • 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 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. Thus, two-sided platform firms may not at all engage in tax shifting via price increases. We further show that a higher ad valorem tax may undermine a firm's incentive to differentiate its product from that of its competitors. Finally, we demonstrate that the effects of increasing specific taxes may be the opposite of those of increasing value added taxes. Copyright 2010 Oxford University Press 2010 All rights reserved, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 62 (2010)
Issue (Month): 4 (October)
Pages: 764-783

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Handle: RePEc:oup:oxecpp:v:62:y:2010:i:4:p:764-783

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Cited by:
  1. Bombana, Roberto & Marchese, Carla, 2012. "Designing Fees for Music Copyright Holders in Radio Services," POLIS Working Papers, Institute of Public Policy and Public Choice - POLIS 166, Institute of Public Policy and Public Choice - POLIS.

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