Deceptive Features on Platforms

Abstract

Many products sold on online platforms have additional features like fees for services, shipping, luggage, upgrades etc. We study when a two-sided platform shrouds additional features towards potentially-naive buyers. We explore a novel mechanism according to which platforms shroud to manipulate network externalities between buyers and sellers. Exploring this mechanism, we argue the advent of online marketplaces led to less-transparent markets. First, platforms have stronger incentives to shroud seller fees than sellers themselves. Second, platforms shroud their own fees less if they earn more revenue from sellers; so when sellers on the platform compete more fiercely, platforms—somewhat perversely—shroud more. We connect these results to many applications and the current debate on regulating online platforms.