Why Do Platforms Charge Proportional Fees? Commitment and Seller Participation *

Abstract If an intermediary offers sellers a platform to reach consumers, he may face the following hold-up problem: Sellers suspect the intermediary will enter their respective product market as a merchant after they have sunk fixed costs of entry. Therefore, fearing that their investments cannot be recouped, less sellers join the platform. Hence, committing to not becoming active in sellers' markets can be profitable for the intermediary. We discuss different platform tariff systems to analyze this hold-up problem. We find that proportional fees (which are observed in many relevant real-world examples) mitigate the problem, unlike classical two-part tariffs (which most of the literature on two-sided markets examines). Thus, we offer a novel explanation for the use of proportional platform fees. Keywords: Intermediation, Platform Tariff, Hold-Up Problem JEL classification numbers: D40, L14, L81 * We are grateful to Norbert Schulz and Peter Welzel for insightful guidance and continuous encouragement. We also thank participants at the 11th BGPE research workshop and at the KUL-UMA-DICE-ZEW Ph.D. workshop for helpful comments