Vertical Agreements and User Access

Abstract

Platforms acting as sales channels for producers often charge users for access, via a subscription fee or a markup on hardware. We compare two common forms of vertical pricing agreement that platforms use with sellers: per-­unit and proportional fees. In particular, we analyze the critical role that user access plays on equilibrium prices and profits under both forms of agreement. We characterize this role and show how it potentially overturns standard results saying that proportional fees lead to lower prices and higher profits.

Keywords: Platforms, User Access, Per-Unit vs. Proportional Fees, Wholesale vs. Agency Agreements, Unit vs. Ad Valorem Taxation, Antitrust

JEL Classification: D21, D40, L23, L4, L42, L51, L82, L86