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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 such prices as a profit shifting device.

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File URL: http://hdl.handle.net/11250/163962
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Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2009/1.

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Length: 13 pages
Date of creation: 14 Apr 2009
Date of revision:
Handle: RePEc:hhs:nhhfms:2009_001
Contact details of provider: Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspxEmail:


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  1. Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 149-82, February.
  2. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. Hans Jarle Kind & Marko Köthenbürger & Guttorm Schjelderup, 2008. "Efficiency Enhancing Taxation in Two-sided Markets," CESifo Working Paper Series 2262, CESifo Group Munich.
  4. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
  5. Alfons Weichenrieder, 1996. "Fighting international tax avoidance," Fiscal Studies, Institute for Fiscal Studies, vol. 17(1), pages 37-58, February.
  6. Jack Hirshleifer, 1956. "On the Economics of Transfer Pricing," The Journal of Business, University of Chicago Press, vol. 29, pages 172.
  7. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
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