Optimal Trade Policies on a Monopoly Platform in Two‐Sided Markets

Abstract

This study examines the determination of import policies imposed on a monopoly platform product in a two‐sided market. The platform facilitates interaction between consumers and service providers with the entry of service providers influencing product demand and, consequently, encouraging more entries. The study finds that optimal import policies are influenced by network externalities and an increase in the number of importing countries. Specifically, the optimal import policies are import tariffs with a small degree of externalities. The optimal tariffs increase when externalities are small but decrease when they are large. In case of large externalities, countries' optimal import policies become import subsidies. Additionally, when importing countries noncooperatively establish their import policies, an increased number of importing countries increases the optimal tariffs with a small degree of network externalities. However, when importing countries cooperatively determine their import policies, an increase in the number of importing countries consistently decreases the optimal tariffs or increases the optimal import subsidies. Furthermore, an increased degree of the network externalities always decreases optimal import tariffs or increases optimal import subsidies. These results underscore the significance of policy cooperation among importing countries in advancing trade liberalization for platform products.