Optimal Contract Under Endogenous Platform Services: Implications of Tax and Advertising

Sangita Poddar, Tanmoyee Banerjee (Chatterjee) and Swapnendu Banerjee (Bandyopadhyay)

Studies in Microeconomics, 2024, vol. 12, issue 3, 345-370

Abstract: The paper evaluates the contracting problem between a platform and a seller under information asymmetry where the seller holds private information about his/her cost for product quality. Price per product is influenced by seller’s product quality and platform’s service quality. Cost-sharing contract is more desirable as it induces a higher level of qualities and generates higher profit for the platform compared to revenue-sharing contract. The product quality and platform’s service quality vary negatively with the ad-valorem tax imposed on price of the product. We then introduce advertising in our model and observe that the level of advertising is lower under information asymmetry. JEL Classifications : D86, L21, M37

Keywords: Platform; contracting; asymmetric information; advertising; ad-valorem tax (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:miceco:v:12:y:2024:i:3:p:345-370

DOI: 10.1177/23210222231206232

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