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Why Do Platforms Charge Proportional Fees? Commitment and Seller Participation

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  • Johannes Muthers
  • Sebastian Wismer

Abstract

This paper deals with trade platforms whose operators not only allow third party sellers to offer their products to consumers, but also offer products themselves. In this context, the platform operator faces a hold-up problem if he uses classical twopart tariffs only as potential competition between the platform operator and sellers reduces platform attractiveness. Since some sellers refuse to join the platform, some products that are not known to the platform operator will not be offered at all. We find that revenue-based fees lower the platform operator’s incentives to compete with sellers, increasing platform attractiveness. Therefore, charging such proportional fees can be profitable, which may explain why several trade platforms indeed charge proportional fees.

Suggested Citation

  • Johannes Muthers & Sebastian Wismer, 2023. "Why Do Platforms Charge Proportional Fees? Commitment and Seller Participation," Economics working papers 2023-03, Department of Economics, Johannes Kepler University Linz, Austria.
    • Handle: RePEc:jku:econwp:2023-03
    Note: English
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    References listed on IDEAS

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    Cited by:

    1. Niedermayer Andras, 2015. "Does a Platform Monopolist Want Competition?," Review of Network Economics, De Gruyter, vol. 14(1), pages 1-44, March.
    2. Sebastian Wismer, 2013. "Intermediated vs. Direct Sales and a No-Discrimination Rule," Working Papers 131, Bavarian Graduate Program in Economics (BGPE).
    3. Honglin Li & Xiaolu Liu, 2021. "Ad valorem versus per unit taxation: a perspective from price signaling," Journal of Economics, Springer, vol. 134(1), pages 27-47, September.
    4. Hongyan Li & Shiming Deng, 2019. "A game-theoretical analysis of joint-rebate strategies in platform-based retailing systems," EURO Journal on Decision Processes, Springer;EURO - The Association of European Operational Research Societies, vol. 7(1), pages 117-150, May.
    5. Zhu Wang, 2018. "Why Do Platforms Use Ad Valorem Fees? Evaluating Two Alternative Explanations," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 153-171.
    6. Zhu Wang & Julian Wright, 2017. "Ad valorem platform fees, indirect taxes, and efficient price discrimination," RAND Journal of Economics, RAND Corporation, vol. 48(2), pages 467-484, May.
    7. Federico Etro, 2023. "e-Commerce Platforms and Self-preferencing," Working Papers - Economics wp2023_07.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    8. Niedermayer, Andreas, 2015. "Does a Platform Monopolist Want Competition?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 523, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    9. Zhu Wang & Julian Wright, 2012. "Ad-valorem platform fees and efficient price discrimination," Working Paper 12-08, Federal Reserve Bank of Richmond.

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    More about this item

    Keywords

    Intermediation; Platform Tariff; Hold-Up Problem;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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