Platform Pricing Structure and Moral Hazard

32 Pages Posted: 13 Feb 2011 Last revised: 22 Nov 2012

See all articles by Guillaume Roger

Guillaume Roger

Luis I. Vasconcelos

New University of Lisbon - Faculdade de Economia

Multiple version iconThere are 2 versions of this paper

Date Written: June 2012

Abstract

We study pricing by a monopoly platform that matches buyers and sellers in an environment with cross-market externalities. Said platform has no private information, does not set the commodity's price and can only charge trading parties for the transaction. Our innovation consists in introducing moral hazard on the sellers' side and an equilibrium notion of platform reputation in an infinite horizon model. With linear fees the platform can mitigate, but not eliminate, the loss of reputation induced by moral hazard. If lump-sum fees (registration fees) can be levied, moral hazard can be overcome. The upfront payment determines the participation threshold of sellers and extracts them, while (lower) transactions fees provide incentives for good behavior. This breaks the equivalence of lump-sum payments and linear fees (Rochet and Tirole (2006)). We draw implications for the role of subsidies (Caillaud and Jullien (2003)).

Keywords: Platforms, Two-Sided Markets, Reputation, Moral Hazard

JEL Classification: L11, L12, L14, L81, D21, D82

Suggested Citation

Roger, Guillaume and Vasconcelos, Luis I., Platform Pricing Structure and Moral Hazard (June 2012). UNSW Australian School of Business Research Paper No. 2010 ECON 28, Available at SSRN: https://ssrn.com/abstract=1760604

Luis I. Vasconcelos

New University of Lisbon - Faculdade de Economia ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal
+35121380172 (Phone)

HOME PAGE: http://docentes.fe.unl.pt/~lipv064/

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