Should Platforms Be Allowed to Charge Ad Valorem Fees?

23 Pages Posted: 26 Mar 2017 Last revised: 19 Aug 2018

See all articles by Julian Wright

Julian Wright

National University of Singapore (NUS) - Department of Economics

Date Written: 2017-03-22

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

JEL Classification: D4, H2, L5

Suggested Citation

Wright, Julian, Should Platforms Be Allowed to Charge Ad Valorem Fees? (2017-03-22). FRB Richmond Working Paper No. 17-5, Available at SSRN: https://ssrn.com/abstract=2939525

Julian Wright

National University of Singapore (NUS) - Department of Economics ( email )

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