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Say there is a marketplace company that facilitates buy/sell of digital content (i.e. marginal cost = 0). And that content is somewhat substitutable but not completely so. As an example, for a particular category of digital goods we see the majority of sellers pricing at $100, while some price lower and higher based on whether their good is clearly much higher quality (or has more inclusions or whatever) or lower if lower quality/less inclusions/more simple.

The marketplace levies a commission on the sellers, say 30% of the sale value.

And now the marketplace decides to increase the fee to 40%.

How would the sellers respond? Do they just soak up the extra fee? Do they pass it through to customers? The marginal cost of additional unit sold is zero. The company is somewhat of a market leader (but by no means the only option for buyers).

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I sell digital books, and will discuss their particular situation. I do not know whether what I describe applies elsewhere.

I and have read a fair amount of discussions about how to price books. To what extent academic research would be referred to, it’s wherever marketing research ends up (business journals?), and not straight economic models.

The first thing to keep in mind is that for electronic books, there is “arbitrage” across platforms, and there is pressure by some stores to keep your price in line with other platforms. As such, if one platform changes their royalty payout, you have to either eat the lower revenue, drop the platform, or raise price across all platforms. If the platform is small, you might be able to just raise the price on that one platform, but that might anger customers. As such, the decision is complex. E.g., is it possible to stop using a platform? Is the lower revenue per unit on one platform enough to justify a global price hike?

After that, pricing is somewhat of a black art. Each market has its own conventions for pricing. For example, dollar prices often end in .99 (this convention is in fact enforced on one platform). Therefore, you cannot make small percentage adjustments to price (unless the price is large, which is rare for e-books).

After that pricing is relative to competitors, any paperback edition (where printing cost partly determines price), and how you want to position your book. For example, you might keep the price high if you are emphasizing the quality of your books. Once again, pricing is a marketing decision, since the sales price is far above the marginal production price.

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  • $\begingroup$ I usually enjoy industry insights and I really liked this one. $\endgroup$
    – Giskard
    Sep 23 '20 at 22:06
  • $\begingroup$ If one platform raises their fee, why can't you just raise your price on that platform, and if anyone complains, you point out it's the platform's fault and they should use a different platform with lower fees? $\endgroup$
    – user253751
    Aug 16 at 13:47
  • $\begingroup$ It looks bad to have a different price, but it’s unless you are a big author, nobody will approach you to ask why. Simpler to just opt out of the platform. If the platform represents a big part of your sales, then the situation is more awkward. Once again, I am discussing the situation in books, and other digital products might behave differently. $\endgroup$ Aug 17 at 15:09

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