Should Platforms be Allowed to Charge Ad Valorem Fees?

Zhu Wang and Julian Wright

No 17-5, Working Paper from Federal Reserve Bank of Richmond

Abstract: 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 versions of the model based on data from Amazon's marketplace and Visa's signature debit cards.

Keywords: platforms; taxation; third-degree price discrimination (search for similar items in EconPapers)
JEL-codes: D4 H2 L5 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2017-03-22
New Economics Papers: this item is included in nep-mic, nep-pay, nep-pub and nep-sea
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Related works:
Journal Article: Should platforms be allowed to charge ad valorem fees? (2018)
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