Lingga, D. (with Fabrizi, S., Lippert, S.), 2025. Tax and Subsidy Policies in a Two-Sided Market: An Application to the Digital Healthcare Industry. Journal of Public Economic Theory 27(6), e70077.
We model an online health marketplace hosting telehealth services as a two-sided market facilitating patient-doctor interactions. We show that, in the laissez-faire equilibrium, a profit-maximizing platform serves too few patients and doctors, compared to the social optimum, because it does not internalize cross-group network externalities. We demonstrate under what conditions introducing a tax-subsidy policy system leads to an increase in the number of agents toward the socially optimal levels. We find that any positive subsidy under the set of policies improves participation and increases interaction benefits, but it is only welfare-enhancing if the subsidy is low enough. We demonstrate that the set of policies is particularly effective in emerging telehealth markets, where demand for medical services is high, doctors' competition is insignificant, and platform rivalry has yet to develop.