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The Limits of Marketplace Fee Discrimination

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  • Mark J. Tremblay

    (Miami University, Farmer School of Business, Department of Economics, 800 E. High St., Oxford, OH 45056)

Abstract

Platforms often use fee discrimination within their marketplace (e.g., Amazon, eBay, and Airbnb specify a variety of merchant fees). To better understand the impact of marketplace fee discrimination, we develop a model that allows us to determine platform equilibrium fee, category, and retail entry decisions that depend on the extent of fee discrimination available to the platform. Isolating the effects of fee discrimination (by not allowing the platform to enter into commerce), we find that greater fee discrimination allows the platform to serve more markets in its marketplace but also worsens double marginalization in the high surplus markets. However, if the platform enters into retail, then the platform reduces its fees and generates greater retail competition. These effects mitigate distortions from fee discrimination and improve welfare. In terms of policy, we show that (1) banning fee discrimination and platform entry is detrimental to welfare, (2) a vertical merger within a retail market mitigates double marginalization but is often worse than an equilibrium with platform entry into retail, and (3) taxing the platform in retail (not merchants) levels the retail playing field and can generate a Pareto improvement upon a policy that bans platform retail entry.

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  • Mark J. Tremblay, 2020. "The Limits of Marketplace Fee Discrimination," Working Papers 20-10, NET Institute.
    • Handle: RePEc:net:wpaper:2010
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    References listed on IDEAS

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    1. Zhu Wang & Julian Wright, 2018. "Should platforms be allowed to charge ad valorem fees?," Journal of Industrial Economics, Wiley Blackwell, vol. 66(3), pages 739-760, September.
    2. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2015. "The Limits of Price Discrimination," American Economic Review, American Economic Association, vol. 105(3), pages 921-957, March.
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    Cited by:

    1. Yassine Lefouili & Leonardo Madio, 2022. "The economics of platform liability," European Journal of Law and Economics, Springer, vol. 53(3), pages 319-351, June.
    2. de Cornière, Alexandre & Mantovani, Andrea & Shekhar, Shiva, 2023. "Third-Degree Price Discrimination in Two-Sided Markets," CEPR Discussion Papers 18380, C.E.P.R. Discussion Papers.
    3. Doh-Shin Jeon & Yassine Lefouili & Leonardo Madio, 2021. "Platform Liability and Innovation," Working Papers 21-05, NET Institute.
    4. Federico Etro, 2023. "Hybrid Marketplaces with Free Entry of Sellers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(2), pages 119-148, March.
    5. Federico Etro, 2021. "Product selection in online marketplaces," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(3), pages 614-637, August.

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    More about this item

    Keywords

    Platforms; platform retail entry; price discrimination; vertical integration; intermediary;
    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
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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