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Deceptive Products on Platforms

Author

Listed:
  • Johannes Johnen

    (CORE and LIDAM, Universite catholique de Louvain, Voie du Roman Pays 34, 1348 Ottignies-Louvain-la-Neuve, Belgium)

  • Robert Somogyi

    (Budapest University of Technology and Economics, Department of Finance and Centre for Economic and Regional Studies, Magyar tudosok korutja 2, 1117 Budapest, Hungary)

Abstract

On many online platforms, sellers offer products with additional fees and features. Platforms often deliberately shroud these fees from consumers. Examples are shipping fees, luggage fees on flight-aggregator websites, or resort fees and upgrades on hotel booking platforms. We explore the incentives of two-sided platforms to disclose additional fees and design a transparent marketplace when consumers might naively ignore shrouded additional fees. First, we find that platforms have stronger incentives to shroud additional fees than sellers in the absence of platforms. This result holds for monopoly platforms and in some competitive settings. Second, competition might induce platforms to regulate additional fees, which benefits consumers. We discuss connections to frequent practices like drip pricing, and platforms like Amazon or eBay regulating shipping fees.

Suggested Citation

  • Johannes Johnen & Robert Somogyi, 2019. "Deceptive Products on Platforms," Working Papers 19-13, NET Institute.
    • Handle: RePEc:net:wpaper:1913
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    File URL: http://www.netinst.org/Somogyi_19-13.pdf
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    More about this item

    Keywords

    Two-sided markets; Deceptive products; Platform competition; Consumer mistakes; Shrouded attributes;
    All these keywords.

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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