Regulating Platform Fees

Abstract

Abstract We consider platforms that help consumers discover and transact with suppliers. Such platforms have come to dominate many sectors of the economy, raising issues about the high fees they charge suppliers, especially since they tend to commoditize the suppliers they aggregate. We show that in a baseline setting, the efficient platform fee is determined by a simple formula: it equals the platform’s marginal cost plus the difference between suppliers’ markups on the direct channel and suppliers’ markups on the platform. We explore the extent to which this simple formula provides a robust cap for regulating the platform’s fee more generally.