Abstract
This paper formulates an equilibrium model to examine price competition in an electronic commerce market where the offline firms compete against an online firm when commodity taxes are imposed on transactions. We compare the price differential between offline and online markets at the symmetric and coexistence equilibrium. We then analyze government tax revenues, investigating the optimal tax difference between online and offline taxes. This model demonstrates that there is an optimal difference between the two taxes and thus, the equilibrium prices depend not only on the ratio of online access cost and offline transportation cost, but on tax distortion cost
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