Optional Intermediaries and Pricing Restraints

39 Pages Posted: 13 Apr 2021 Last revised: 12 Jul 2021

See all articles by Chang Liu

Chang Liu

Harvard University, Department of Economics, Students

Fengshi Niu

Stanford University, Graduate School of Business

Alexander White

Tsinghua University - School of Economics & Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 8, 2021

Abstract

When a platform is an optional intermediary, should it require price coherence, i.e., that sellers 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, when demand has flexible curvature, a markup-versus-volume tradeoff arises that governs the platform’s choice. When sellers’ profits are concave enough, the platform prefers to let them charge separate prices. However, when it does require price coherence, there is a drawing-in effect, geared towards low-valuation platform users, which can make this policy surprisingly appealing for consumers.

Keywords: Platforms, online intermediaries, price coherence, price discrimination

JEL Classification: D21, L11, L42

Suggested Citation

Liu, Chang and Niu, Fengshi and White, Alexander, Optional Intermediaries and Pricing Restraints (July 8, 2021). Available at SSRN: https://ssrn.com/abstract=3825163 or http://dx.doi.org/10.2139/ssrn.3825163

Chang Liu

Harvard University, Department of Economics, Students ( email )

Cambridge, MA
United States

Fengshi Niu

Stanford University, Graduate School of Business ( email )

CA
United States

Alexander White (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Mailbox A-44
Weilun Building
Beijing, 100084
China

HOME PAGE: http://alex-white.net

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