Working Paper: CEPR ID: DP16243
Authors: Simon P. Anderson; Zlem Bedredefolie
Abstract: We provide a canonical and tractable model of a trade platform enabling buyers and sellers to transact. The platform charges a percentage fee on third-party product sales and decides whether to be "hybrid", like Amazon, by selling its own product. It thereby controls the number of differentiated products (variety) it hosts and their prices. Using the mixed market demand system, we capture interactions between monopolistically competitive sellers and a sizeable platform product. Using long-run aggregative games with free entry, we endogenize seller participation through an aggregate variable manipulated by the platform's fee. We show that a higher quality (or lower cost) of the platform's product increases its market share and the seller fee, and lowers consumer surplus. Banning hybrid mode benefits consumers. The hybrid platform might favor its product and debase third-party products if the own product advantage is sufficiently high. We also provide some tax policy implications.
Keywords: trade platform; hybrid business model; antitrust policy; tax policy
JEL Codes: D42; L12; L13; L40; H25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher quality or lower cost of the platform's product (L15) | increase in market share (L19) |
| higher quality or lower cost of the platform's product (L15) | increase in seller fees (D49) |
| higher quality or lower cost of the platform's product (L15) | lower consumer surplus (D11) |
| banning the hybrid mode (C24) | benefits consumers (D18) |
| hybrid platform's product advantage (O36) | favoring own product over third-party products (L17) |