Fee-Setting Mechanisms: On Optimal Pricing by Intermediaries and Indirect Taxation


Loertscher, Simon ; Niedermayer, Andras


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URL: https://ub-madoc.bib.uni-mannheim.de/35362
URN: urn:nbn:de:bsz:180-madoc-353624
Document Type: Working paper
Year of publication: 2014
The title of a journal, publication series: Working Paper Series
Volume: 14-03
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Industrieökonomik, Wettbewerbspolitik u. Regulierung (Peitz 2007-)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Classification: JEL: C72 , C78 , L13,
Keywords (English): brokers , applied mechanism design , linear commission fees , optimal indirect mechanisms , auction houses
Abstract: Mechanisms according to which private intermediaries or governments charge transaction fees or indirect taxes are prevalent in practice. We consider a setup with multiple buyers and sellers and two-sided independent private information about valuations. We show that any weighted average of revenue and social welfare can be maximized through appropriately chosen transaction fees and that in increasingly thin markets such optimal fees converge to linear fees. Moreover, fees decrease with competition (or the weight on welfare) and the elasticity of supply but decrease with the elasticity of demand. Our theoretical predictions fit empirical observations in several industries with intermediaries.

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Loertscher, Simon ; Niedermayer, Andras (2014) Fee-Setting Mechanisms: On Optimal Pricing by Intermediaries and Indirect Taxation. Open Access Working Paper Series Mannheim 14-03 [Working paper]
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