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.Market Structure and Pricing; Efficiency; Optimal Taxation; Incidence