Profit shifting in two-sided markets

Dirk Schindler*, Guttorm Schjelderup

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Scopus)


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
Issue number3
Publication statusPublished - Nov 2010
Externally publishedYes

Bibliographical note

Funding Information:
We are indebted to Øystein Foros, Hans Jarle Kind and two anonymous referees for providing us with very useful comments. Remaining errors are ours. Financial support from the Research Council of Norway and the Deutsche Forschungsgemeinschaft is gratefully appreciated.


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