Tuesday, November 17, 2020

Vertical Agreements and User Access

Germain Gaudin

University of Freiburg - College of Economics and Behavioral Sciences; Télécom Paris

Alexander White

Tsinghua University - School of Economics & Management


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 prices, profits, and welfare 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.


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