Ad-valorem platform fees and efficient price discrimination
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.
|Date of creation:||2012|
|Contact details of provider:|| Web page: http://www.richmondfed.org/|
More information through EDIRC
|Order Information:|| Web: http://www.richmondfed.org/publications/ Email: |
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.:
- 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.
- Malueg, D.A. & Schwartz, M., 1993. "Parallel Imports, Demand Dispersion and International Price Discrimination," Papers 93-6, U.S. Department of Justice - Antitrust Division.
- Julian Wright, 2012. "Why payment card fees are biased against retailers," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 761-780, December.
- Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
- Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
- Jean-Charles Rochet & Jean Triole, 2002. "Platform competition in two sided markets," LSE Research Online Documents on Economics 24929, London School of Economics and Political Science, LSE Library.
- Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
- Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
- Johannes Muthers & Sebastian Wismer, 2012. "Why Do Platforms Charge Proportional Fees? Commitment and Seller Participation," Working Papers 115, Bavarian Graduate Program in Economics (BGPE).
- Jeremy Bulow & Paul Klemperer, 2012. "Regulated Prices, Rent Seeking, and Consumer Surplus," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 160-186.
- Jeremy Bulow & Paul Klemperer, 2012. "Regulated Prices, Rent-Seeking, and Consumer Surplus," Economics Papers 2012-W03, Economics Group, Nuffield College, University of Oxford.
- Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
- Schmalensee, Richard., 1980. "Output and welfare implications of monopolistic third-degree price discrimination," Working papers 1095-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- 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.
- 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.
- 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.
- Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-122, June.
- Richard Schmalensee, 2001. "Payment Systems and Interchange Fees," NBER Working Papers 8256, National Bureau of Economic Research, Inc.
- E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-1672, September.
- 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. Full references (including those not matched with items on IDEAS)