Trade policy with FANG's (aka trade policy and multi-sided platforms)

Abstract

The recent and rapid rise to prominence of the big-tech firms, collectively known as FANG's, owes much to their multi-sided approach. As economic activity shifts toward these business models, trade-agreements are being extended to ensure free trade in platform based products, guided by the logic and practice familiar from standard models (one-sided markets). Does this prescription automatically carry over to two-sided markets? We show that a world with FANG's can look and behave very differently from the more familiar one-sided setting, it's even possible for tariffs to lower prices, raise consumption and increase global welfare; the opposite of the one-sided result. We empirically explore the conditions for such outcomes and show they arise for a set of products recently added to the WTO's ITA, raising the possibility that policy errors are creeping into international-agreements from following one-sided logic in an increasingly two-sided world.