Why Do Platforms Charge Proportional Fees? Commitment and Seller Participation
AbstractIf 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 115.
Length: 30 pages
Date of creation: Feb 2012
Date of revision:
Intermediation; Platform Tariff; Hold-Up Problem;
Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Zhu Wang & Julian Wright, 2012. "Ad-valorem platform fees and efficient price discrimination," Working Paper 12-08, Federal Reserve Bank of Richmond.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kamila Cygan-Rehm).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.