Newspapers and Advertising: The Effects of Ad-Valorem Taxation under Duopoly

Newspapers are two-sided platforms that sell their product both to readers and to advertisers. Media firms in general, and newspapers in particular, are considered important providers of information, culture and language in most countries. Newspapers are therefore given preferential tax treatment. We show that lower ad-valorem taxes lead newspapers to become more differentiated. Thereby the competitive pressure falls, possibly resulting in higher newspaper prices and reduced quality investments.