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The pricing of ancillary goods when selling on a platform

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  • Miao, Chun-Hui

Abstract

Firms often sell a basic good as well as an ancillary one. When selling through platforms, they pay a fee for intermediated sales. The fee structure affects the pricing of the ancillary good. Under ad valorem fees, sellers have an incentive to shift revenue to the less taxed good. A lower fee on the ancillary good may thus increase its price. As a result, removing Apple’s App Store’s payment restrictions for in-app purchases can potentially harm consumers and lower welfare. Our analysis also shows that efficient consumption of the ancillary good is achieved under a fee or tax that increases with the elasticity of demand for the good.

Suggested Citation

  • Miao, Chun-Hui, 2022. "The pricing of ancillary goods when selling on a platform," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:indorg:v:83:y:2022:i:c:s0167718722000236
    DOI: 10.1016/j.ijindorg.2022.102847
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    1. Belleflamme, Paul & Johnen, Johannes, 2023. "Non-Price Strategies of Marketplaces: A Survey," LIDAM Discussion Papers CORE 2023015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    More about this item

    Keywords

    Ad valorem fee; Ancillary goods; App store; Intermediation; “Razer and blades” pricing;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L00 - Industrial Organization - - General - - - General

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