Profit Shifting in Two-Sided Markets
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 (abusive) transfer prices as a profit-shifting device.
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Volume (Year): 17 (2010)
Issue (Month): 3 ()
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