Effects of an ad valorem Web Tax in a Cournot-Nash market for digital advertising

Diego d'Andria

We extend the theory of tax incidence under Cournot-Nash oligopolistic competition to study the effects of an ad valorem sales tax on Web services (so-called Web Tax) that are provided free of charge to users, and produce advertising space sold to businesses. Ads are more valuable to advertisers the more users are served by a Web service. Users have ads-neutral preferences and Web companies compete in a Cournot-Nash fashion on the advertising market but enjoy monopolistic power in the service market they serve. We demonstrate that, contrary to standard theoretical results, the equilibrium market price might be reduced by a Web Tax. The conditions for such a decrease depend upon the elasticity of ads demand.

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Year of publication:	December 2018 ; This version: December 2018
Authors:	D'Andria, Diego
Publisher:	Sevilla, Spain : European Commission
Subject:	Web tax \| digital advertising \| Cournot competition \| tax incidence \| Online-Marketing \| Internet marketing \| Social Web \| Social web \| Electronic Commerce \| E-commerce \| Mobile Marketing \| Mobile marketing \| Theorie \| Theory \| Steuerinzidenz \| Tax incidence \| Steuerwirkung \| Tax effects \| Werbewirkung \| Advertising effects \| Konsumentenverhalten \| Consumer behaviour \| Internet \| Duopol \| Duopoly \| Werbung \| Advertising \| Oligopol \| Oligopoly \| Website