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Consumer Naivete and Competitive Add-on pricing on platforms

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  • Ghosh, Meenakshi

Abstract

Two sellers trade vertically and horizontally differentiated goods on a platform which charges them a commission fee. Some consumers are naive and do not observe, or consider, add-on prices until after they commit to buying the base good from a seller. We address the following questions. First, how do consumer naivete and costs asymmetries (arising from differences in fees) influence pricing strategies. Second, we examine the welfare loss arising from sub-optimal decisions made by naive consumers who buy the bundle, but fail to factor in its total price at the outset. Third, how does naivete affect seller and platform payoffs.

Suggested Citation

  • Ghosh, Meenakshi, 2022. "Consumer Naivete and Competitive Add-on pricing on platforms," MPRA Paper 113548, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:113548
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    add-on pricing; consumer naivete; cost asymmetry; horizontal differentiation; vertical differentiation; platform fee; cost pass-through;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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