ISSN 0253-2778

CN 34-1054/N

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Two-sided platforms performance investment and pricing

  • School of Management, University of Science and Technology of China, Hefei 230026, China

Cite this:
https://doi.org/10.3969/j.issn.0253-2778.2016.12.010
  • Received Date: 09 November 2015
  • Accepted Date: 25 March 2016
  • Rev Recd Date: 25 March 2016
  • Publish Date: 30 December 2016
    Abstract

  • Abstract

    In the development of two-sided platforms, managers of platforms must decide what level of platform performance to invest. Higher performance is helpful to attract more users, but it often requires developers to make large investment to participate. Based on this, a model was established to explore platforms performance investment and pricing. The result shows that platforms performance investment and pricing are driven by two different expectations, favorable and unfavorable expectation. Under favorable expectation, managers only need to find the optimal performance and pricing according to investment profit function; under unfavorable expectation, managers can adopt seller subsidy strategy or buyer attraction strategy to eliminate the unfavorable expectations and maximize profits.

    Abstract

    In the development of two-sided platforms, managers of platforms must decide what level of platform performance to invest. Higher performance is helpful to attract more users, but it often requires developers to make large investment to participate. Based on this, a model was established to explore platforms performance investment and pricing. The result shows that platforms performance investment and pricing are driven by two different expectations, favorable and unfavorable expectation. Under favorable expectation, managers only need to find the optimal performance and pricing according to investment profit function; under unfavorable expectation, managers can adopt seller subsidy strategy or buyer attraction strategy to eliminate the unfavorable expectations and maximize profits.
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    • References(16)
  • [1]
    PARKER G, VAN ALSTYNE M. A digital postal platform: Definitions and a roadmap[R]. Cambridge, MA: The MIT Center for Digital Business，2012.
    [2]
    VAN DER RHEE B, SCHMIDT G M, TSAI W. Steepen, maintain, or flatten the performance treadmill[R]. Salt Lake City, UT: David Eccles School of Business, University of Utah, 2007.
    [3]
    ANDERSON JR E G, PARKER G G, TAN B. Platform performance investment in the presence of network externalities[J]. Information Systems Research, 2013, 25(1): 152-172.
    [4]
    ROCHET J C, TIROLE J. Cooperation among competitors: Some economics of payment card associations[J]. Rand Journal of Economics, 2002: 549-570.
    [5]
    ROCHET J C, TIROLE J. Platform competition in two-sided markets [J]. Journal of the European Economic Association, 2003, 1(4): 990-1 029.
    [6]
    CAILLAUD B, JULLIEN B. Chicken & egg: Competition among intermediation service providers [J]. RAND Journal of Economics, 2003: 309-328.
    [7]
    PARKER G G, VAN ALSTYNE M W. Two-sided network effects: A theory of information product design[J]. Management Science, 2005, 51(10): 1 494-1 504.
    [8]
    ARMSTRONG M. Competition in two-sided markets [J]. The RAND Journal of Economics, 2006, 37(3): 668-691.
    [9]
    BHARGAVA H K, CHOUDHARY V. Economics of an information intermediary with aggregation benefits[J]. Information Systems Research, 2004, 15(1): 22-36.
    [10]
    BOUDREAU K J. Let a thousand flowers bloom? An early look at large numbers of software APP developers and patterns of innovation[J]. Organization Science, 2012, 23(5): 1 409-1 427.
    [11]
    ZHU F, IANSITI M. Entry into platform-based markets [J]. Strategic Management Journal, 2012, 33(1): 88-106.
    [12]
    LIN M, WU R, ZHOU W. Platform pricing with endogenous network effects[DB/OL]. SSRN: 2426033, 2014.
    [13]
    MANTENA R, SAHA R L. Co-opetition between differentiated platforms in two-sided markets[J]. Journal of Management Information Systems, 2012, 29(2): 109-140.
    [14]
    纪汉霖, 管锡展. 服务质量差异化条件下的双边市场定价策略研究[J]. 产业经济研究, 2007(1): 11-18.
    [15]
    万兴, 高觉民. 纵向差异化双边市场中平台策略[J]. 系统工程理论与实践, 2013, 33(4): 934-941.
    [16]
    HAGIU A, SPULBER D. First-party content and coordination in two-sided markets[J]. Management Science, 2013, 59(4): 933-949.
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    [1]
    PARKER G, VAN ALSTYNE M. A digital postal platform: Definitions and a roadmap[R]. Cambridge, MA: The MIT Center for Digital Business，2012.
    [2]
    VAN DER RHEE B, SCHMIDT G M, TSAI W. Steepen, maintain, or flatten the performance treadmill[R]. Salt Lake City, UT: David Eccles School of Business, University of Utah, 2007.
    [3]
    ANDERSON JR E G, PARKER G G, TAN B. Platform performance investment in the presence of network externalities[J]. Information Systems Research, 2013, 25(1): 152-172.
    [4]
    ROCHET J C, TIROLE J. Cooperation among competitors: Some economics of payment card associations[J]. Rand Journal of Economics, 2002: 549-570.
    [5]
    ROCHET J C, TIROLE J. Platform competition in two-sided markets [J]. Journal of the European Economic Association, 2003, 1(4): 990-1 029.
    [6]
    CAILLAUD B, JULLIEN B. Chicken & egg: Competition among intermediation service providers [J]. RAND Journal of Economics, 2003: 309-328.
    [7]
    PARKER G G, VAN ALSTYNE M W. Two-sided network effects: A theory of information product design[J]. Management Science, 2005, 51(10): 1 494-1 504.
    [8]
    ARMSTRONG M. Competition in two-sided markets [J]. The RAND Journal of Economics, 2006, 37(3): 668-691.
    [9]
    BHARGAVA H K, CHOUDHARY V. Economics of an information intermediary with aggregation benefits[J]. Information Systems Research, 2004, 15(1): 22-36.
    [10]
    BOUDREAU K J. Let a thousand flowers bloom? An early look at large numbers of software APP developers and patterns of innovation[J]. Organization Science, 2012, 23(5): 1 409-1 427.
    [11]
    ZHU F, IANSITI M. Entry into platform-based markets [J]. Strategic Management Journal, 2012, 33(1): 88-106.
    [12]
    LIN M, WU R, ZHOU W. Platform pricing with endogenous network effects[DB/OL]. SSRN: 2426033, 2014.
    [13]
    MANTENA R, SAHA R L. Co-opetition between differentiated platforms in two-sided markets[J]. Journal of Management Information Systems, 2012, 29(2): 109-140.
    [14]
    纪汉霖, 管锡展. 服务质量差异化条件下的双边市场定价策略研究[J]. 产业经济研究, 2007(1): 11-18.
    [15]
    万兴, 高觉民. 纵向差异化双边市场中平台策略[J]. 系统工程理论与实践, 2013, 33(4): 934-941.
    [16]
    HAGIU A, SPULBER D. First-party content and coordination in two-sided markets[J]. Management Science, 2013, 59(4): 933-949.
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