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Comparative Statics On Online Competition And Internet Taxation

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  • SANG-HO LEE

    (Department of Economics, Chonnam National University, 300 Yongbong-dong, Bukgu, Gwangju, 500-757, South Korea)

Abstract

This paper analyzes price competition in a differentiated goods market between online and offline firms, and compares equilibrium prices, market demands, and profits of the firms. We also investigate the effects of a commodity tax on offline firms and Internet taxes on online firm regarding government tax revenue. We demonstrate that tax revenue depends not only on the relative size of online access and offline transportation costs, but also on the maturity of e-commerce. Under the Internet Tax Freedom Act, in particular, we show that (i) when the offline commodity tax is large, tax revenue decreases with the maturity of e-commerce market increases, and (ii) when the offline commodity tax is small, tax revenue decreases first and then increases with the maturity of e-commerce market.

Suggested Citation

  • Sang-Ho Lee, 2006. "Comparative Statics On Online Competition And Internet Taxation," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 51(02), pages 229-240.
    • Handle: RePEc:wsi:serxxx:v:51:y:2006:i:02:n:s0217590806002330
    DOI: 10.1142/S0217590806002330
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    References listed on IDEAS

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    1. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521800952.
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