Publication Type

Conference Paper

Publication Date

12-2014

Abstract

This paper examines a monopoly platform’s two-sided pricing strategy through modeling the trades between the participating sellers and buyers. In this approach, the network effects emerge endogenously through the equilibrium trading strategies of the two sides. We show that platform pricing depends crucially on the characteristics associated with market liquidity, including both sides’ entry costs, the buyers’ preferences, and the distribution of the sellers’ quality. The platform may subsidize sellers if the market is sufficiently liquid, whereas buyer subsidy can be optimal given an illiquid market. We also illustrate the impact of the sellers’ quality heterogeneity on the platform’s optimal fees and the two sides’ entry scales. These findings provide guidance for platform pricing based on specific market and user characteristics, which are directly applicable to managerial decisions and deepen theoretical understanding of two-sided platforms.

Keywords

Two-sided platforms, subsidy, variety, quality, network effects, vertical differentiation

Discipline

Computer Sciences | E-Commerce | Management Information Systems

Research Areas

Information Systems and Management

Publication

Workshop on Information Systems and Economics WISE 2014, December 17-19

Publisher

ACM

City or Country

Auckland

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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