Advanced Search
MyIDEAS: Login to save this paper or follow this series

Ad-valorem platform fees and efficient price discrimination

Contents:

Author Info

  • Zhu Wang
  • Julian Wright

Abstract

This paper investigates a puzzle and possible policy concern: Why do platforms such as eBay and Visa that enable the trade of goods of different unobserved costs and values rely predominantly on linear ad-valorem fees, that is, fees that increase in proportion to the sale price of the trades that they enable? Under a broad class of demand functions, we show that a linear ad-valorem fee schedule enables a platform to maximize its profit as if it could actually observe the costs and values of the goods traded and set a different optimal fee for each good. Surprisingly, we find for this class of demands, allowing the platform to set ad-valorem fees (i.e. price discriminate) increases social welfare, both when the platform is regulated to recover costs and when the platform is unregulated.

Download Info

If 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.
File URL: http://www.richmondfed.org/publications/research/working_papers/2012/pdf/wp12-08.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (William Perkins)
Download Restriction: no

File URL: http://www.richmondfed.org/publications/research/working_papers/2012/wp_12-08.cfm
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 12-08.

as in new window
Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:fip:fedrwp:12-08

Contact details of provider:
Web page: http://www.richmondfed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.richmondfed.org/publications/

Related research

Keywords: Financial markets ; Payment systems;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jeremy Bulow & Paul Klemperer, 2012. "Regulated Prices, Rent-Seeking, and Consumer Surplus," Economics Papers 2012-W03, Economics Group, Nuffield College, University of Oxford.
  2. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-22, June.
  4. Simon Loertscher & Andras Niedermayer, 2008. "Fee Setting Intermediaries: On Real Estate Agents, Stock Brokers, and Auction Houses," Discussion Papers 1472, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-47, March.
  6. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
  7. Julian Wright, 2012. "Why payment card fees are biased against retailers," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 761-780, December.
  8. John Vickers & Simon Cowan, 2007. "Output and Welfare Effects in the Classic Monopoly Price Discrimination Problem," Economics Series Working Papers 355, University of Oxford, Department of Economics.
  9. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-72, September.
  10. Johannes Muthers & Sebastian Wismer, 2012. "Why Do Platforms Charge Proportional Fees? Commitment and Seller Participation," Working Papers 115, Bavarian Graduate Program in Economics (BGPE).
  11. Malueg, David A. & Schwartz, Marius, 1994. "Parallel imports, demand dispersion, and international price discrimination," Journal of International Economics, Elsevier, vol. 37(3-4), pages 167-195, November.
  12. Gans Joshua S & King Stephen P, 2003. "The Neutrality of Interchange Fees in Payment Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-18, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Wismer, Sebastian, 2013. "Intermediated vs. Direct Sales and a No-Discrimination Rule," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79999, Verein für Socialpolitik / German Economic Association.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedrwp:12-08. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (William Perkins).

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.