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Optimal Contract Under Endogenous Platform Services: Implications of Tax and Advertising

Author

Listed:
  • Sangita Poddar
  • Tanmoyee Banerjee (Chatterjee)
  • Swapnendu Banerjee

Abstract

The paper evaluates the contracting problem between a platform and a seller under information asymmetry where the seller holds private information about his/her cost for product quality. Price per product is influenced by seller’s product quality and platform’s service quality. Cost-sharing contract is more desirable as it induces a higher level of qualities and generates higher profit for the platform compared to revenue-sharing contract. The product quality and platform’s service quality vary negatively with the ad-valorem tax imposed on price of the product. We then introduce advertising in our model and observe that the level of advertising is lower under information asymmetry. JEL Classifications : D86, L21, M37

Suggested Citation

  • Sangita Poddar & Tanmoyee Banerjee (Chatterjee) & Swapnendu Banerjee, 2024. "Optimal Contract Under Endogenous Platform Services: Implications of Tax and Advertising," Studies in Microeconomics, , vol. 12(3), pages 345-370, December.
    • Handle: RePEc:sae:miceco:v:12:y:2024:i:3:p:345-370
    DOI: 10.1177/23210222231206232
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    More about this item

    Keywords

    Platform; contracting; asymmetric information; advertising; ad-valorem tax;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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