This dissertation develops theoretical frameworks to examine how digital platforms shape and monetize interactions among consumers and producers. It analyzes the incentives that drive platforms’ design and pricing decisions, as well as the regulatory implications of these choices. Chapter 1: Price Coherence and Sponsored Search. Online marketplaces lose revenue when consumers discover products through the platforms but purchase directly from sellers at lower prices. To prevent this, platforms often enforce “price coherence,” requiring sellers to offer their lowest prices through the platforms. Such practices face scrutiny for purportedly raising prices and reducing welfare. I explore the welfare implications of regulating price coherence when a platform may respond by adjusting its online search design. I develop a model in which a platform monetizes seller-consumer access through “transaction fees”—commission on intermediated transactions—and “referral fees”—proceeds from the sale of prominent search slots. With price coherence, the platform offers many prominent slots to help consumers find high value products but calibrates transaction fees to prevent any price reduction from increased competition. With a ban on price coherence, the platform loses its ability to influence prices through transaction fees and responds by offering fewer prominent slots, stifling competition to bolster its revenue from referral fees. My model thus reveals a novel tradeoff: prices are higher with price coherence, but consumers consider fewer products without it. I show that in face of this tradeoff, regulatory proscription of price coherence may unintentionally lower both total welfare and consumer surplus. Chapter 2: Platform Coherence Policies with a Multiproduct Seller. I study a vertically differentiated product market intermediated by a monopoly platform. A monopoly seller offers a low- and a high-quality product to consumers with heterogenous preferences to purchase through the platform rather than directly from the seller. Absent any restrictions imposed by the platform, the seller may draw consumers to purchase directly through differences in product prices and product availability between its direct and platform selling channels. I characterize the strategic pricing and assortment decisions made by the seller. Strategic assortment can substantially lessen the platform’s ability to monetize the access it provides in buyer-seller interactions. The platform always finds it optimal to implement both cross-channel price and availability coherence policies if feasible. In contrast to general optimality of price coherence in similar markets supplied by a single-product seller, the platform may optimally allow for cross-channel price flexibility if it cannot enforce cross-channel availability coherence. Chapter 3: Product Recommendations with Match Externalities. Platforms designing product recommender systems face a tradeoff between providing familiar “safe” recommendations likely to engage consumers or unfamiliar “discovery” recommendations with more engagement uncertainty but higher potential value. Committing to provide discovery recommendations when safe ones offer little value increases buyers’ willingness to pay but may reduce successful consumer-producer matches. I show how match externalities to third-party advertisers can tip the scale of this tradeoff towards safe recommendations to prioritize consumer engagement over value. Although some consumers would prefer discovery, a platform provides them with safe recommendations to increase its revenue from third-party advertisers, compensating the consumers with lower participation fees. Despite reduced recommendation efficiency, consumer surplus increases with the presence of third-party advertisers. These match externalities typically cause a platform to prefer improving the “allure” (match likelihood) of discovery recommendations over their “suitability” (expected value from successful matches).
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