Intermediated Surge Pricing
38 Pages Posted: 12 Jan 2017 Last revised: 29 May 2018
Date Written: July 2017
I study a market in which a profit-maximizing intermediary facilitates trade between buyers and sellers. The intermediary sets prices for buyers and sellers, and keeps the difference as her fee. Optimal prices increase with demand and, under plausible conditions, the optimal percent fee decreases with demand. However, if the intermediary keeps a constant percent fee regardless of demand, as is the case for some intermediaries, the price paid by buyers during high (low) demand increases (decreases) even further; that is, surge pricing is amplified.
JEL Classification: D42, L12
Suggested Citation: Suggested Citation