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Internet markets are usually under the command of a market intermediary. The market intermediary acts as a necessary catalyst for the transactions to occur, and for this reason it can charge fees for its services. In particular, it is likely that the intermediary will want to use market imperfections, like congestion, to its advantage in order to extract additional profit. Congestion in an Internet market occurs when the cost of trade increases with the presence of additional agents, new sellers most likely. For several years now eBay has been using a rudimentary form of congestion pricing, or as they call it “Featured Plus!.” This type of congestion pricing works by giving sellers the option to incur an extra fee at the time of posting their items for sale and in return having these items listed first when buyers search for specific features, or categories. The basic idea is that potential buyers incur a lower cost of search when looking at “featured items.” The objective of this paper is to quantify the effect of market congestion and congestion pricing strategies implemented by the market intermediary on buyers, sellers, trade, profit and welfare. |
