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An optimal internet location strategy for markets with different tax rates

Levin, E.J. and Wright, R.E. (2001) An optimal internet location strategy for markets with different tax rates. In: Economics and the Internet. Berlecon, pp. 5-9. ISBN 978-3831122424

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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: Book Section
    ID code: 7213
    Keywords: internet trading, tax rate differences, automobiles, microeconomics, Commerce
    Subjects: Social Sciences > Commerce
    Department: Strathclyde Business School > Economics
    Related URLs:
      Depositing user: Strathprints Administrator
      Date Deposited: 06 Jan 2009 16:42
      Last modified: 19 Mar 2012 11:25
      URI: http://strathprints.strath.ac.uk/id/eprint/7213

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