Pricing Mechanism And Platform Competition In Two-Sided Markets

From21st century, the theory of two-sided markets has caused widespread concern of international economic circles. It is enriched and improved based on the theory of network externalities and multi-product pricing. Research on the theory of two-sided markets has a great importance in guiding economic practice.First, this paper will summarize the classic literature on two-sided markets, including cross-group network externalities, concepts and features of this kind of markets. Then, we will gather up literatures on competitive strategies and pricing behavior of platform companies. In the end, we will review the existing literatures on bankcard markets which are the core of this paper. Bankcard markets are closely related to our lives, In the whole market, there are network platforms, issuers, consumers, acquirers and merchants. Cardholders’ and merchants’ fees are made by platforms to maximize platforms’profit. In theory, the pricing of platforms is one of the important issues of the two-sided markets. In practice, the bankcard pricing and competitive strategies are related to the orderly running of the market. From the instances of merchants refusing to accept card consuming, we can see that the pricing of bankcard platforms is a key challenge to bankcard payment industry. Therefore, the study on the bankcard network pricing and analysis of the U.S bankcard antitrust case will have important practical significance.Different from the traditional analysis of the pricing strategies, platforms in the two-sided markets will not only consider the price factor in the pricing process, but also need to consider the impact of cross-group network externalities and other factors on both sides of the user. This paper sets models of monopoly and competitive bankcard platforms to analyze platforms’pricing and competitive strategy. We come to the conclusion that the pricing behavior of platforms are effected by such factors as the number of both sides users, cross-group network externalities, the degree of product differentiation, switching costs and so on. On this basis, we analyze the choice of competitive strategy of the platforms. Different from the single market, the platforms in bankcard industry tend to adopt asymmetric pricing to expand the user base. Due to the cross-group network, the other side users will be attracted to join the platform. The analysis of the antitrust case of American bankcard industry is a useful exploration in solving the restricting problems of development of the bankcard industry.