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Ad-valorem platform fees and efficient price discrimination
This paper investigates a puzzle and possible policy concern: Why do platforms such as eBay and Visa that enable the trade of goods of different unobserved costs and values rely predominantly on linear ad-valorem fees, that is, fees that increase in proportion to the sale price of the trades that they enable? Under a broad class of demand functions, we show that a linear ad-valorem fee schedule enables a platform to maximize its profit as if it could actually observe the costs and values of the goods traded and set a different optimal fee for each good. Surprisingly, we find for this class of ...
Interchange fees in various countries: developments and determinants
Interchange fees and related issues in credit and debit card markets have been the focus of considerable attention in recent years. The academic community has begun to address the economics of these markets. Public officials have begun to address the policy implications of developments in these markets. Meanwhile, these markets continue to experience dynamic change as credit, and especially debit, transactions account for an ever-growing share of overall payments. This paper provides an overview of interchange fee developments and issues in a number of countries. It also presents a ...
Should Platforms be Allowed to Charge Ad Valorem Fees?
Many platforms that facilitate transactions between buyers and sellers charge ad valorem fees in which fees depend on the transaction price set by sellers. Given these platforms do not incur significant costs that vary with transaction prices, their use of ad valorem fees has raised controversies about the efficiency of this practice. In this paper, using a model that connects platforms' use of ad valorem fees to third-degree price discrimination, we evaluate the welfare consequences of banning such fees. We find the use of ad valorem fees generally increases welfare, including for calibrated ...