Optional Intermediaries and Pricing Restraints

Optional Intermediaries and Pricing Restraints

 

Chang Liu

Harvard University, Department of Economics, Students

Fengshi Niu

University of California, Berkeley, Department of Economics, Students

Alexander White

Tsinghua University - School of Economics & Management

Abstract

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, when demand has flexible curvature, 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.