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An optimal location strategy for Internet sellers in markets with different tax rates

Wright, R.E. and Levin, E.J. (2003) An optimal location strategy for Internet sellers in markets with different tax rates. Business Economist, 34 (1). pp. 42-47. ISSN 0306-5069

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Abstract

The traditional view that a high sales tax rate reduces trade by driving a wedge between the purchase and sale price may not apply to internet commerce for two reasons. The first reason is that the sales tax paid by buyers purchasing via the internet is determined by the tax rate in the region of the buyer. The second reason is that a high sales tax may lower the before-tax price if sellers absorb part of the tax. Taken together, this implies that internet distributors may profitably target customers in regions with low tax rates by locating their selling addresses in high tax regions. Consequently the optimal marketing strategy for a global internet distributor may include siting selling locations in regions with high tax rates in order to target customers in regions with low tax rates. An empirical analysis of the European car market suggests that this is more than a remote theoretical possibility by demonstrating that the before-tax prices recommended by manufacturers for new cars are lower in high tax countries.

Item type: Article
ID code: 6929
Keywords: internet trading, tax rate differences, automobiles, taxes, economics, internet, online trading, Electronic computers. Computer science, Economic Theory
Subjects: Science > Mathematics > Electronic computers. Computer science
Social Sciences > Economic Theory
Department: Strathclyde Business School > Economics
Depositing user: Strathprints Administrator
Date Deposited: 01 Oct 2008
Last modified: 16 Apr 2015 03:29
Related URLs:
URI: http://strathprints.strath.ac.uk/id/eprint/6929

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