Ad-valorem platform fees, indirect taxes and efficient price discrimination (Revised August 2016)

This paper explains why platforms such as Amazon and Visa rely predominantly on ad-valorem fees, fees which increase proportionally with transaction prices. It also provides a new explanation for why ad-valorem sales taxes are more desirable than specific taxes. The theory rests on the ability of ad-valorem fees and taxes to achieve efficient price discrimination given that the value of a transaction to buyers tends to vary proportionally with the cost of the good traded.

Supplementary Appendix