Paper/Speech Details of Conference Program for the 27th NISPAcee Annual Conference Program Overview WG5: Public Finance and Public Financial Management Author(s) Sovik Mukherjee St. Xavier's University Kolkata India Title Tax Incidence of Two-Sided Monopoly Platforms File Paper files are available only for conference participants, please login first. Presenter Sovik Mukherjee Abstract Many a market with network externalities is a two-sided platform. The present paper models a monopoly platform with buyers on one side and sellers on the other. There are a number of examples of monopoly platforms existing in reality. Sometimes, shopping malls or nightclubs or restaurants are located far off from others or when there is only one newspaper or a magazine or a journal in a particular market then the monopoly platform paradigm appears appropriate. Even the example of Adobe Reader, a few years back, as software for viewing any electronic document in ‘Portable Document Format (PDF)’ and a yellow pages directory of an incumbent telephone company are also very good examples in this regard. The platform charges a fixed membership fee and a variable usage fee from both the sides and the buyers and sellers are heterogeneous in terms of the per unit benefit they derive on the transaction of the product. The benefit of registration is that the members do not have to fill their identity details every time they log on the platform. So, it saves the members’ transaction cost. We characterize the equilibrium and check that whether it matches the results existing in the literature. Then we introduce ad valorem and specific tax on the buyer’s side of the platform alone. Some recent papers like — Belleflamme and Toulemonde (2016) report counter intuitive results like imposition of a higher tax on the platform transaction may actually be a boon for the platform through the strategic complementarities effects i.e. the effect on the platform’s profit through the modification of the other platform’s equilibrium prices. However Belleflamme and Toulemonde (2016) derive this result in the case of competing platforms. This paper makes an attempt to explore the incidence of taxation on a monopoly platform and checks whether similar results hold. While the incidence of the specific tax turns out to be similar to the standard monopoly case except that the extent of deadweight loss is lower, the incidence of ad valorem tax comes with a surprise. Among the counterintuitive results in case of ad valorem tax, we find that for efficient platforms the increase in tax rate may reduce the deadweight loss and also may lead to an increase in monopoly profit. Nevertheless the Laffer curve relation holds for both types of taxes and given the efficiency level of the platform, in the case of ad valorem tax the revenue is maximized at a higher rate than in the case of specific tax.
