The Agency and Wholesale Models When a Platform Can Charge Entry Fees

We study the agency and wholesale models of intermediation in a bilateral monopoly where a platform can charge sellers an entry fee. With full-profit-extracting entry fees, the agency model eliminates double marginalization and yields lower prices and higher platform profits than the wholesale model, while the seller earns zero profit under both models. With partial rent extraction, the agency model yields lower prices than the wholesale model when demand satisfies Marshall’s Second Law, or when the platform can extract a sufficiently large share of the seller’s profit, regardless of demand. To disentangle the mechanisms at play in this comparison, we also study the agency model with per-unit commissions. We show that shifting price-setting power from the platform to the seller lowers prices, while changing the commission instrument from per-unit to ad valorem usually further reduces prices. Finally, when the platform is uncertain about the seller’s dead-weight loss from paying the entry fee, entry may fail. We characterize when the platform optimally sets a zero entry fee, extend the price comparison, and provide conditions under which the agency model delivers both lower prices and higher entry than the wholesale model. We also show that per-unit commissions never dominate ad valorem commissions simultaneously in terms of price and entry, whereas the reverse can occur.