Platform Lending

We study an e-commerce platform’s incentive to enter the credit market and offer loans for vendors’ innovations. The platform earns from both its lending ac- tivity and fees collected on transactions in the marketplace. If the platform does not offer loans, it might find it convenient to charge a high fee that will appeal to non-innovators only, thereby stifling innovation. If the platform offers loans, it engages in a cross-subsidy raising the fee and lowering the loan rate. We identify conditions under which the platform finds it optimal to enter the credit market as the combination of interest rate and fee allows the platform to separate innovative and non-innovative vendors and price discriminate them. Platform lending always harms non-innovative vendors and can benefit innovators