Profit shifting in two-sided markets

Dirk Schindler*, Guttorm Schjelderup

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

3 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)373-383
Number of pages11
JournalInternational Journal of the Economics of Business
Volume17
Issue number3
DOIs
Publication statusPublished - Nov 2010
Externally publishedYes

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