Optional Intermediaries and Pricing Restraints
37 Pages Posted: 13 Apr 2021
Date Written: April 3, 2021
When a platform is an optional intermediary, should it require sellers to charge the same price to the platform’s users as they charge their direct customers? If the platform does this, how will it affect consumers’ and overall welfare? In a model leveraging insight from the study of third-degree price discrimination, we show that an interesting markup-versus-volume tradeoff governs the platform’s choice. Moreover, a drawing-in effect, geared towards low-valuation platform users, makes such a policy surprisingly appealing for consumers.
Keywords: Platform strategy, online intermediaries, price coherence, price discrimination
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