The effect of commission scheme in online marketplaces under various information scenarios

Abstract The growing prevalence of online retailing has reshaped how marketplaces operate. This paper considers the case where a platform and a seller both receive signals (private information) that correlate with uncertain demand and may choose whether to share this information. The platform can adopt one of two commission schemes: fixed (a given sum for each unit sold) or proportional (a given percentage of the revenue). Specifically, this study deals with pure strategies and focuses on comparing commission schemes under different information scenarios (common information or information superiority of one of the parties). The main findings are: (i) Under the fixed commission scheme and information superiority of the seller, the platform always prefers a more informative signal. (ii) Under the proportional commission scheme, it is in the platform’s interest to share its private information with the seller and offer the seller a constant percentage that does not depend on the platform’s signal. (iii) In contrast to the proportional commission scheme, under fixed commission, the seller will refuse to play in some (private-signal determined) cases.