D’Annunzio, Anna and Russo, Antonio (2024) Platform Transaction Fees and Freemium Pricing. TSE Working Paper, n. 24-1569, Toulouse

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Abstract

We study transaction fees applied by marketplace platforms where sellers (e.g., app developers) adopt freemium pricing. An ad valorem transaction fee reduces quality distortions introduced by the price-discriminating seller, thereby increasing consumer surplus. Moreover, a small fee increases welfare, implying that the agency model may be socially preferable to integration between platform and seller. However, the platform may set the equilibrium fee above the socially optimal level. Providing devices needed to access the marketplace (e.g., phones) induces the platform to raise the fee, whereas providing a product that competes with the seller induces a lower fee.