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.
|Number of pages||11|
|Journal||International Journal of the Economics of Business|
|Publication status||Published - Nov 2010|
Bibliographical noteFunding 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.