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 ad-valorem tax rate - rather than a subsidy - could increase output and enhance welfare.
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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number
CESifo Working Paper No. 1871.
Kind, Hans Jarle & Koethenbuerger, Marko & Schjelderup, Guttorm, 2007.
"Taxation in Two-Sided Markets,"
Discussion Papers
2007/3, Department of Finance and Management Science, Norwegian School of Economics and Business Administration.
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Find related papers by JEL classification: D40 - Microeconomics - - Market Structure and Pricing - - - General D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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Kind, Hans Jarle & Koethenbuerger, Marko & Schjelderup, Guttorm, 2008.
"Efficiency Enhancing Taxation in Two-sided Markets,"
Discussion Papers
2008/1, Department of Finance and Management Science, Norwegian School of Economics and Business Administration.
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