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Platform Pricing Structure and Moral Hazard

Author

Listed:
  • Guillaume Roger

    (School of Economics, The University of New South Wales)

  • Luis I. Vasconcelos

    (Department of Economics, Universidade Nova de Lisboa)

Abstract

We study pricing by a monopoly platform that matches buyers and sellers in an environment with cross-market externalities. Said platform has no private information, does not set the commodity's price and can only charge trading parties for the transaction. Our innovation consists in introducing moral hazard on the sellers' side and an equilibrium notion of platform reputation in an infinite horizon model. With linear fees the platform can mitigate, but not eliminate, the loss of reputation induced by moral hazard. If lump-sum fees (registration fees) can be levied, moral hazard can be overcome. The upfront payment determines the participation threshold of sellers and extracts them, while (lower) transactions fees provide incentives for good behavior. This breaks the equivalence of lump-sum payments and linear fees (Rochet and Tirole (2006)). We draw implications for the role of subsidies (Caillaud and Jullien (2003)).

Suggested Citation

  • Guillaume Roger & Luis I. Vasconcelos, 2010. "Platform Pricing Structure and Moral Hazard," Discussion Papers 2010-28, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2010-28
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2010-28.pdf
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    References listed on IDEAS

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    1. repec:adr:anecst:y:2000:i:59:p:02 is not listed on IDEAS
    2. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
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    Citations

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    Cited by:

    1. Guillaume Roger & Luís Vasconcelos, 2014. "Platform Pricing Structure and Moral Hazard," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(3), pages 527-547, September.
    2. repec:esx:essedp:738 is not listed on IDEAS
    3. Aoyagi, Masaki & Yoo, Seung Han, 2022. "Matching strategic agents on a two-sided platform," Games and Economic Behavior, Elsevier, vol. 135(C), pages 271-296.
    4. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.
    5. Sirong Luo & Radha Mookerjee & Dengpan Liu, 2021. "The Effects of Auction‐based Pricing Mechanisms and Social Characteristics on Microloan Performance," Production and Operations Management, Production and Operations Management Society, vol. 30(2), pages 311-329, February.
    6. Xueke Du & Rui Dong & Wenli Li & Yibo Jia & Lirong Chen, 2019. "Online Reviews Matter: How Can Platforms Benefit from Online Reviews?," Sustainability, MDPI, vol. 11(22), pages 1-20, November.
    7. Carmelo Cennamo & Juan Santaló, 2019. "Generativity Tension and Value Creation in Platform Ecosystems," Organization Science, INFORMS, vol. 30(3), pages 617-641, May.
    8. Adrien Querbes, 2018. "Banned from the sharing economy: an agent-based model of a peer-to-peer marketplace for consumer goods and services," Journal of Evolutionary Economics, Springer, vol. 28(3), pages 633-665, August.
    9. Roß Wiebke & Weghake Jens, 2015. "10 Jahre YouTube: Von dem Aufstieg einer Plattform und der Entwicklung neuer Märkte zum Kollateralschaden einer Google-Regulierung? / 10 Years YouTube: From the Arising of a Platform and the Developme," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 66(1), pages 195-220, January.

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    More about this item

    Keywords

    Platforms; Two-Sided Markets; Reputation; Moral Hazard;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • 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
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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