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Intellectual property and taxation of digital platforms

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  • Juan Manuel Sánchez-Cartas

    (Universidad Politecnica de Madrid)

Abstract

I study the impact of ad-valorem and unit taxes on the intellectual property policies of two-sided digital platforms. First, I address the monopoly case, in which I show that the effects of taxes depend on which side they are levied on. If developers are taxed, I find that ad-valorem taxes reduce the platform openness and the exclusivity period granted to developers to exploit their innovations. The opposite is true when taxes are levied on users. On the other hand, the effect of unit taxes is ambiguous in general. Then, I extend the model to address the duopoly case, and I find that competition may increase welfare, but it is not guaranteed. The effects of taxes on welfare are similar in both regimes. In general, they are ambiguous, but I characterize those cases which are welfare-enhancing unambiguously. I conclude highlighting the potential impact of the Digital Service Tax (DST) proposed by the European Commission on platform openness and digital innovation in Europe.

Suggested Citation

  • Juan Manuel Sánchez-Cartas, 2021. "Intellectual property and taxation of digital platforms," Journal of Economics, Springer, vol. 132(3), pages 197-221, April.
    • Handle: RePEc:kap:jeczfn:v:132:y:2021:i:3:d:10.1007_s00712-020-00717-5
    DOI: 10.1007/s00712-020-00717-5
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    References listed on IDEAS

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    1. Hans Jarle Kind & Marko Koethenbuerger & Guttorm Schjelderup, 2010. "Tax responses in platform industries," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 764-783, October.
    2. Marc Bourreau & Bernard Caillaud & Romain De Nijs, 2018. "Taxation of a digital monopoly platform," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(1), pages 40-51, February.
    3. Belleflamme, Paul & Peitz, Martin, 2019. "Price disclosure by two-sided platforms," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    4. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    5. Hans Jarle Kind & Guttorm Schjelderup & Frank Stähler, 2013. "Newspaper Differentiation and Investments in Journalism: The Role of Tax Policy," Economica, London School of Economics and Political Science, vol. 80(317), pages 131-148, January.
    6. Kind, Hans Jarle & Koethenbuerger, Marko & Schjelderup, Guttorm, 2009. "On revenue and welfare dominance of ad valorem taxes in two-sided markets," Economics Letters, Elsevier, vol. 104(2), pages 86-88, August.
    7. Hans Jarle Kind & Marko Koethenbuerger, 2018. "Taxation in digital media markets," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(1), pages 22-39, February.
    8. Geoffrey Parker & Marshall Van Alstyne, 2018. "Innovation, Openness, and Platform Control," Management Science, INFORMS, vol. 64(7), pages 3015-3032, July.
    9. Kind, Hans Jarle & Koethenbuerger, Marko & Schjelderup, Guttorm, 2008. "Efficiency enhancing taxation in two-sided markets," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1531-1539, June.
    10. Subhasish M. Chowdhury & Stephen Martin, 2017. "Exclusivity and exclusion on platform Markets," Journal of Economics, Springer, vol. 120(2), pages 95-118, March.
    11. Paul Belleflamme & Eric Toulemonde, 2018. "Tax incidence on competing two‐sided platforms," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(1), pages 9-21, February.
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    Cited by:

    1. Chenglei Xu & Shuxin Zhu & Boru Yang & Bin Miao & Yi Duan, 2023. "A Review of Policy Framework Research on Promoting Sustainable Transformation of Digital Innovation," Sustainability, MDPI, vol. 15(9), pages 1-26, April.
    2. Juan Manuel Sanchez‐Cartas & Gonzalo León, 2021. "Multisided Platforms And Markets: A Survey Of The Theoretical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 35(2), pages 452-487, April.

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    More about this item

    Keywords

    Two-sided markets; Digital platforms; Taxation; Intellectual property; Openness;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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