Policy Implementation in the Presence of Platform-Retailer Conflict

In this paper, we study how a profit-maximizing platform implements a new policy, from which a representative retailer also experiences a private externality. Our analysis suggests that: (1) when the policy is highly valuable for the platform’s own interest, the platform may charge a fee from the retailer and then promise a less aggressive policy coverage; (2) when the policy is considerably expensive, in order to implement it, the platform may compensate the retailer and then share the full pie of the latter’s revenue; (3) when the policy is mediocre to the platform, a hybrid occurs, where the platform may either charge a fee from the retailer or compensate to capture a portion of the retailer’s realized revenue. Lastly, we carry out a series of comparative statics to show the impact on policy implementation when the externality distribution and the platform’s self-interest change