The Impacts of Tax Policy on Platform Markets in Digital Economy

This paper examines the effects of governmental policy in digital economy, especially the tax policy. We analyze how preferential tax policy affects the platform market and customer welfare. First, our findings demonstrate that prices have negative relation with preferential tax level in incompatible case and no relation in asymmetric compatible case. Corporation profits have positive relation with preferential tax level in asymmetric compatible case and no relation in incompatible case. Second, we derive a specific range in which preferential tax level could make it beneficial for both customers and platforms to improve compatibility. High compatibility is only good for platforms but not for customers when preferential tax level is too high. And oppositely, it’s only good for customers when preferential tax level is too low, but platforms have no incentives to support for it.