Economics Seminar - Platform competition: Unit fee or proportional fee?

We study platform competition where merchants pay service fees in two possible ways: a unit fee that is independent of the transaction price, or a proportional fee that is a fraction of the transaction price. When platforms are equally efficient, they may all choose proportional fee if merchants compete in Cournot, even though the fee scheme hurts merchants and does not help the platforms. When platforms differ in their costs, proportional fee is more likely to be chosen by the efficient platform if merchants compete in either Cournot or Bertrand. Proportional fee always generates a larger welfare than unit fee. An inefficient platform may successfully break into a market using a fee scheme that is advantageous than the one used by the incumbent, and such entry does not necessarily hurt welfare.