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Deceptive Features on Platforms

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  • Johannes Johnen
  • Robert Somogyi

Abstract

Many products sold on online platforms have additional features like fees for services, shipping, luggage, upgrades, and so on. We study when a two-sided platform shrouds additional features towards potentially naive buyers. We explore a novel mechanism according to which platforms shroud to manipulate network externalities between buyers and sellers. Exploring this mechanism, we argue the advent of online marketplaces led to less transparent markets. First, platforms have stronger incentives to shroud seller fees than sellers themselves. Second, platforms shroud their own fees less if they earn more revenue from sellers; so when sellers on the platform compete more fiercely, platforms—somewhat perversely—shroud more. We connect these results to many applications and the current debate on regulating online platforms.

Suggested Citation

  • Johannes Johnen & Robert Somogyi, 2024. "Deceptive Features on Platforms," The Economic Journal, Royal Economic Society, vol. 134(662), pages 2470-2493.
    • Handle: RePEc:oup:econjl:v:134:y:2024:i:662:p:2470-2493.
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    File URL: http://hdl.handle.net/10.1093/ej/ueae016
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    Cited by:

    1. Jeon, Doh-Shin & Ichihashi, Shota & Kim, Byung-Cheol, 2024. "Mechanism Design and Innovation Incentive for an Ad-Funded Platform," TSE Working Papers 24-1591, Toulouse School of Economics (TSE).
    2. Doh-Shin Jeon & Yassine Lefouili & Leonardo Madio, 2021. "Platform Liability and Innovation," Working Papers 21-05, NET Institute.

    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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