The Quality Investment And Pricing Strategies In Two-sided Markets

Two-sided markets,as a new form of industrial organization,are of great significance and wide application in modern economies,for example,e-commerce websites,search engines,smartphone operating systems,taxi-hailing applications,can all be regarded as typical two-sided markets.Currently,most of the research focuses on the specific behaviors and welfare effects of platforms with network effects in a static environment.The management issues involving multi-variable decision-making behaviors,long-term dynamic competition,and growth path dependence in the market have been rarely addressed.In reality,platforms will adopt a variety of non-pricing strategies to enhance user stickiness and increase user scale besides using pricing strategies,among which the quality investment strategies to improve the quality of products and services have rarely been studied.In general,platforms can develop various functions and characteristics through quality investment,thereby reducing the search cost of users(such as Taobao provides commodity search functions that meet the diverse needs of users),transaction costs(such as Alibaba developing Alipay to provide transaction settlement services for users and merchants)or product development costs(such as Huawei provides programming interfaces and development kits to developers to facilitate application development),etc.Platforms'investment decision has different effects on the utility of two-sided users,thus affecting the prices of users on both sides.On the one hand,if the platforms'investment improves the utility of one side users to increase demand,then the price of the other side will rise;on the other hand,if the improvement of platform quality reduces the demand elasticity of one side users,then the price of the other side of the platform will decrease,so it is of great significance to clarify the price transmission mechanism caused by the platform quality investment.In addition,in practice,the strategic behavior of the platforms are often dynamic,showing different behaviors in different periods.In the early stage,platforms may fall into fierce price competition and pay a lot of investment to promote the growth of the platform and realize the market leading position,so as to implement the penetration pricing strategy after forming enough competition barriers.For platform-based firms,as the risks and challenges along with enterprise development continue to increase,it is especially critical to develop appropriate strategy and continuously improve the competitiveness for platforms.In view of this,this dissertation takes joint decision-making and dynamic competition of platform as innovation perspectives to study investment and pricing decisions of two-sided platforms.The issues of joint investment and pricing decision-making when investment has different impact on two sides users,investment and pricing of differentiation platforms and investment and pricing of platforms in a dynamic environment are studied in detail,the optimal investment and pricing strategies of platforms in different environments are obtained,to provide valuable suggestions for the development and competition of two-sided platforms in reality and contribute to the theory of competition in two-sided markets.Specifically,the main contents of this dissertation are as following:Chapter 1 introduces the background of two-sided markets,puts forward the research problems of this dissertation,and clarifies the main contents,research methods,technical routes and innovations of this dissertation.Chapter 2 systematically combs the theoretical research context of tow-sided markets,expounds the definition,characteristics and classification of two-sided markets,reviews the relevant research around the pricing,investment and industrial dynamics in two-sided markets,points out the shortcomings of the existing literature and defines the research object of this dissertation.Chapter 3 first develops a dynamic game model under the monopoly situation,then develops a game model under the competition situation,to study the joint decision-making which affects the platforms' profits besides only considering pricing strategies.The influences of various exogenous factors on platforms' decisions are analyzed,such as the strength of network effects,the effects of investment to two sides users' utility,and platforms' strategies and profits in different situations are compared.Chapter 4 discusses the investment and pricing strategies of two-sided platforms under the condition of different quality investment efficiency and users' perception of platform quality.In this chapter,the quality of the platform has an impact on both users,and both sides users are affected by network externalities.In this context,we study the endogenous quality selection of platforms and its impacts on the equilibrium pricing,market share and platforms' profit.In Chapter 5,I develop a stochastic dynamic game model to study the investment and pricing strategies of the platform in the dynamic competition environment,and the industrial structure derived from the equilibrium strategies.Considering how the platforms'investment and pricing strategies are driven by three factors:marginal utility of quality,indirect network effects and the of degree platform differentiation.The key driving factors of platform success in dynamic environment are analyzed,and the influences of these factors on the long-term market structure are investigated.Chapter 6 gives a general survey of the main conclusions of the dissertation,points out the shortcomings of the existing research and the directions of future research.The main innovations of this paper are as follows:(1)This dissertation studies the joint decision-making of quality investment that affects the profits of platforms besides only considering pricing strategies,and analyzes the influence of exogenous factors on platforms'strategies,such as the strength of network effects,the effects of investment to two sides users'utility and differentiation between platforms.It was found that as the competitive environment varies,investment in quality affects users on both sides differently,platforms have different investment behaviors,and in some cases higher quality investments result in lost profits.(2)Further deepen the research,consider the asymmetric competition problem when the platform investment cost and the perception of platform quality of users on both sides are different.It was found that high-quality platforms prefer market environments where users perceive quality differently,while low-quality platforms prefer market environments where users perceive quality relatively equally,which can have different effects on the decisions of differential platforms.(3)The theory of industrial dynamics and stochastic game are introduced into the study of two-sided markets.In order to overcome the limitation of static model and consider the evolution of market structure over time,this dissertation studies the long-term industrial dynamics of two-sided markets,analyzes the key driving factors of platforms'success in the dynamic environment,and provides reference for platforms to develop strategies.The study found that the key determinants of platform success depend on the industry characteristics of the platform and the initial strengths of its quality and user base.