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Platform Pricing Structure and Moral Hazard

Roger, G and Vasconcelos, LI (2010) Platform Pricing Structure and Moral Hazard. UNSPECIFIED. University of New South Wales, School of Economics, Discussion Papers 2010-28.

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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)).

Item Type: Monograph (UNSPECIFIED)
Uncontrolled Keywords: Platforms; Two-Sided Markets; Reputation; Moral Hazard
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 13 Jul 2012 10:44
Last Modified: 01 Jun 2018 12:15
URI: http://repository.essex.ac.uk/id/eprint/2951

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