Efficiency enhancing taxation in two-sided markets

Abstract

This paper examines the efficient provision of goods in two-sided markets and characterizes optimal specific and ad-valorem taxes. We show that (i) a monopoly may have too high output compared to the social optimum; (ii) output may be reduced by imposing negative value-added taxes (subsidy) or positive specific taxes.JEL Code: D4, D43, H21, H22, L13.

On Revenue and Welfare Dominance of Ad Valorem Taxes in Two-Sided Markets

“…3 Thus, the standard argument in the literature in favor of ad valorem taxation is reproduced: for any given unit tax imposed on a monopoly, there exists an ad valorem tax that revenue-dominates the unit tax.…”

Effects of Taxes and Subsidies on Media Services

“…To incorporate this as simply as possible, we hold on to the assumption that newspaper readers are indifferent to the ad level in the newspaper (this is not a critical assumption; see Kind et al 2008). 9 However, we assume that demand for ads is increasing in newspaper circulation ( / 0).…”

“…11 What happens to the advertising level and advertising price depends on the exact shape of the demand and cost function, which we will not discuss here (see Kind et al, 2008, for an analysis). However, it can be shown that both the advertising level and newspaper sales might increase under reasonable assumptions.…”

Digital Revolutions in Public Finance

“…Taxation in two-sided markets has also been examined (see, for example, Kind, Koethenbuerger, andSchjelderup 2008, 2010;Bourreau, Caillaud, and De Nijs, forthcoming). Once again demand complementarities alter the results from traditional one-sided markets.…”

“…Once again demand complementarities alter the results from traditional one-sided markets. For a monopoly platform, Kind, Koethenbuerger, and Schjelderup (2008) show how an increase in ad valorem tax on one side of the market may result in overproduction (compared to the social optimum), with an increase in output on both sides of the market. For example, an increase in the ad valorem tax on side E may lead the platform to raise sales on side F. To do so, the platform would need to increase output on both sides E and F given their mutual dependence.…”