Platform Disintermediation: Information Effects and Pricing Remedies

Platform Disintermediation: Information Effects and Pricing Remedies In “Platform Disintermediation: Information Effects and Pricing Remedies,” S. Sekar and A. Siddiq analyze how platforms use pricing and informational levers to combat disintermediation, where sellers transact off-platform to avoid commission fees despite losing payment protection. The authors find that a platform facing a high threat of disintermediation may optimally raise its commission rates in a high-information environment, prioritizing revenue maximization from remaining secure transactions rather than preventing all off-platform transactions. Furthermore, they show that increasing sellers’ switching costs may actually reduce platform revenue by enabling sellers to pass the cost onto on-platform buyers via higher prices. The analysis also demonstrates that a platform can benefit from providing a partially informative signal about buyer riskiness, as full information reduces the value of the platform’s protection and strengthens the disintermediation incentive. Finally, whereas access-based pricing (upfront fees) prevents disintermediation, it may yield less revenue than commissions when seller quality is highly heterogeneous.