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Why Do Platforms Charge Proportional Fees? Commitment and Seller Participation

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Author Info

  • Johannes Muthers
  • Sebastian Wismer

Abstract

If an intermediary offers sellers a platform to reach consumers, he may face the following hold-up problem: sellers suspect the intermediary will enter their respective product market as a merchant after they have sunk fixed costs of entry. Therefore, fearing that their investments cannot be recouped, less sellers join the platform. Hence, committing to not becoming active in sellers' markets can be profittable for the intermediary. We discuss different platform tariff systems to analyze this hold-up problem. We find that proportional fees (which are observed in many relevant real-world examples) mitigate the problem, unlike classical two-part tariffs (which most of the literature on two-sided markets examines). Thus, we offer a novel explanation for the use of proportional platform fees.

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File URL: http://www.bgpe.de/texte/DP/115_MuthersWismer.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 115.

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Length: 30 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:bav:wpaper:115_mutherswismer

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Web page: http://www.bgpe.de/
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Related research

Keywords: Intermediation; Platform Tariff; Hold-Up Problem;

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Cited by:
  1. Zhu Wang & Julian Wright, 2012. "Ad-valorem platform fees and efficient price discrimination," Working Paper 12-08, Federal Reserve Bank of Richmond.

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