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Should platforms be allowed to charge ad valorem fees?

Author

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  • Zhu Wang
  • Julian Wright

Abstract

Many platforms that facilitate transactions between buyers and sellers charge ad valorem fees in which fees depend on the transaction price set by sellers. Given these platforms do not incur significant costs that vary with transaction prices, their use of ad valorem fees has been questioned. In this paper, using a model that connects ad valorem fees to third‐degree price discrimination, we evaluate the welfare consequences of banning such fees. We find the use of ad valorem fees generally increases welfare, including for calibrated versions of the model based on data from Amazon's marketplace and Visa's signature debit cards.

Suggested Citation

  • Zhu Wang & Julian Wright, 2018. "Should platforms be allowed to charge ad valorem fees?," Journal of Industrial Economics, Wiley Blackwell, vol. 66(3), pages 739-760, September.
    • Handle: RePEc:bla:jindec:v:66:y:2018:i:3:p:739-760
    DOI: 10.1111/joie.12180
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    Cited by:

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    2. Ding, Rong & Ko, Chiu Yu & Shen, Bo, 2022. "Partial compatibility in two-sided markets: Equilibrium and welfare analysis," Economic Modelling, Elsevier, vol. 116(C).
    3. Mark J. Tremblay, 2020. "The Limits of Marketplace Fee Discrimination," Working Papers 20-10, NET Institute.
    4. Yao Tang & Xu Guan, 2022. "Seller Organization and Percentage Fee Design in the Daily Deal Market," Information Systems Research, INFORMS, vol. 33(4), pages 1287-1302, December.
    5. Doh-Shin Jeon & Yassine Lefouili & Leonardo Madio, 2021. "Platform Liability and Innovation," Working Papers 21-05, NET Institute.
    6. Borys Grochulski & Zhu Wang, 2024. "Real Estate Commissions and Homebuying," Working Paper 24-01, Federal Reserve Bank of Richmond.
    7. Tetsuya Shinkai & Naoshi Doi, 2023. "Price and quality decision of a monopoly platform for transaction with shipping," Discussion Paper Series 252-2, School of Economics, Kwansei Gakuin University, revised Jul 2023.

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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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