Abstract:
This paper studies how platforms jointly choose fees and recommendations and their implications for fee regulation. A platform charges sellers a commission rate and ranks products based on price and match-value. The analysis shows that price-sensitive rankings intensify seller competition, allowing the platform to extract more surplus. Commission-rate caps constrain fees, but platforms may respond by making recommendations less price-sensitive, attenuating consumer-surplus gains. By contrast, capped nominal fees can be more effective because they shift the platform's incentives toward transaction volume rather than transaction value. Effective fee regulation must therefore account for how platforms adjust their recommendation policies in response.
