Economics Webinar - Platform Competition and Equilibrium Proportional Fee
We study platform competition where each platform may charge its merchants in two possible ways: a proportional fee that is a fraction of the product transaction price, or a unit fee that is independent of the transaction price. Proportional fee is shown to appear in equilibrium on a platform that is more efficient than its rival, or when merchants compete in the Cournot fashion. While the equilibrium fee level may rise or fall as compared to unit fee, proportional fee always improves social welfare, and it always hurts competing merchants. Finally, an inefficient platform may successfully break into a market using a fee scheme that is advantageous than the one used by the incumbent platform, and such entry does not necessarily hurt welfare.
Julie by email: fnjuwong@ust.hk