THIRD-PARTY PAYMENT PLATFORM IN ONLINE SHOPPING

Abstract

This paper explores how a third-party payment platform solves commitment problems between buyers and sellers in online shopping. I posit a model to demonstrate that a third-party payment platform is essential. Furthermore, I investigate the differences between the optimal transaction fee charged by a third-party payment platform and social planners. The numerical result shows that the optimal transaction fee set by social planners is less than a third-party payment platform for maximizing social welfare. However, with the accumulation of a third-party payment platform’s wealth and stable investment return from precipitation funds, the optimal transaction fee of social planners will converge to the optimal transaction fee of a third-party payment platform. Finally, if the shock of investment return exists and the transaction fee of a third-party payment platform is changeable along different periods, there is an optimal sequence of transaction fees for the social planner to maximize social welfare.