The Value-added Services Investment And Pricing Strategy On Bilateral Platform

The continuous development of information technology advances the economy and brings significant changes. One of these changes is that the internet technology promotes more and more companies adopt the business model of two-sided platform, which enables the platform economy becomes an important part of today’s economic development. For example, the transaction volume through e-platforms, like Alibaba, Jingdong and Suning, has reached 18.2 billion yuan, which has increases more than 15%. However, the development goes with competition among platforms. Every platform has to take measures to maintain their competitive advantage or make continuous progress when facing the fierce competition. In practice, in order to enlarge or keep their market shares, platforms take various measures to attract and retain customers. Many platforms advertise themselves on other platforms or social network sites to build brand awareness. For example, Tmall advertise on youku or weibo. At the same time, to be more attractive, e-platforms choose to develop a series of value-added services (VASs) to customers on one or both sides through investment. For instance, Microsoft offers cloud storage service to its customers; e-business platforms like Tmall provide online store decorating service to sellers, or push some specific products to buyers according to their browsing records; Wechat adds Didi Travel and public subscription number accounts, etc.This thesis studies the strategy for two-sided platform’s investment on VASs and explores the optimal pricing on the two sides. Specifically, based on realistic backgrounds, we discuss the optimal investing and pricing strategy in terms of the VAS which improves the utility of users on one side and both sides; the optimal investing and pricing strategy when there exists negative intra-group network externality on the seller side; and the optimal investing and pricing strategy when sellers access the platform first while buyers access the platform second. Furthermore, some special characteristics of the optimal pricing with respect to the marginal investing cost and some other parameters in different situations are studied.The main part of this thesis is organized as follows:The first chapter gives the research settings, describes the content of the thesis, the meanings of the research, and the literature review for the studies on the optimal pricing and the service improving for two-sided platforms.The second and third chapters explore the optimal investing and pricing strategy in terms of the VAS which improves the utility of users on one side and both sides, respectively. Based on the equilibrium results, the conditions on which the platform charges or subsidizes users; and the impacts of the marginal investing cost, or some other parameters on the optimal pricing are studied.The fourth chapter studies the investing and pricing strategy allowing that there exists negative intra-group network externality on the seller side. How to make the investment to enhance the sellers’ utility so as to mitigates the loss caused by the intra-group network externality, and how to set the pricing correspondingly are studied.The fifth chapter studies the investing and pricing strategy allowing for the situation where users on the two sides access the platforms sequentially. The impact of the sequential entry on the optimal strategies is explored.The sixth chapter makes the conclusion for the whole thesis; presents the innovations of the research; points out the limitations and the possible topic for future research.The results show that the relative magnitude of the network externalities of users on the two sides measures the relative importance of the two side’s users. Charging users who are more important effectively enable the platform to enlarge the whole market side so as to gain more profit. When the value-added service enhances the utility of users on merely one side, the platform raises the access fee for the invested users, but may either raise or lower the access fee for the uninvested users. When the value-added service enhances the utility of users on both sides directly, and if the gap between the two network externalities, the marginal investing benefits of users have no impact on optimal pricing. Otherwise, either the marginal investing benefits or the marginal investing cost can be the determinant for the optimal strategy. Besides, the optimal level of the service investment decreases with the negative intra-group network externality, while the optimal access fee may either increase or decrease with it. In the scenario of sequential participation of the two sides, the platform raises the access fee users who participate afterwards, but could either raises or lower the access fee for users who participate first.