Consumer naivete and competitive add-on pricing on platforms

Meenakshi Ghosh

MPRA Paper from University Library of Munich, Germany

Abstract: We model a situation where two sellers trade vertically and horizontally differentiated goods on a platform for which they are charged a commission fee. Sellers' costs are asymmetric due to differences in the fees charged by the platform and in their costs of production. Consumers purchase either a base good, or a bundle comprising of the base good and an add-on, from one of the sellers on the platform. Consumers differ in their brand preferences, valuations of quality and in their levels of sophistication. More specifically, we assume that there is a fraction of consumers who are naive, and do not observe or consider add-on prices - possibly because they do not foresee their demand for an add-on - until after they have committed to buying the base good from a seller. We examine how the interplay of these forces shapes consumer behavior, sellers' pricing strategies and cost pass-through, and platform fees and revenues.

Keywords: add-on pricing; consumer naivete; cost asymmetry; horizontal differentiation; platform fees; cost pass-through (search for similar items in EconPapers)
JEL-codes: D43 L11 L14 L15 (search for similar items in EconPapers)
Date: 2021-10-01
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic, nep-ore, nep-pay and nep-reg
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Related works:
Working Paper: Consumer Naivete and Competitive Add-on pricing on platforms (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:109981

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