Pricing Strategy Analysis Of Platform In Two-sided Market

Two-sided market theory is a hot research topic in recent years. As a media, two-sided market platforms charge buyers and sellers to promote trade. One important distinction between two-sided market and traditional market is the crossover network externalities of buyers and the sellers. The increase of users from one side will attract users in the other side through cross network externalities. Asymmetric pricing behavior in two-sided market is very common. Platforms price lower to one side, the purpose of which is to attract users to join in. However, in order to make a profit, platforms will charge higher to the other side to make up the cost. The research on platform pricing of two-sided market needs to consider crossover network externalities and direct network externalities of buyers and sellers, users’ number, and marginal costs of platforms.This paper studies the two-sided market platform pricing strategy, then analyzes that monopoly and competitive platforms should how to price to buyers and sellers for the purpose of maximize profit. Platforms charge much lower to large buyers and sellers. The prices of buyers and sellers in monopoly platforms will increase with the platforms’scale. But in competitive platforms, the direction of transaction fee and registration fee between buyers and sellers is different. Above all, to pursuit profit maximize, competitive platforms are more efficient than monopoly platforms. In two-sided market of homogenous users, prices have direct relationship with network externalities, users’ number and platforms’marginal costs. If there exists differentiation in platforms and users, the differentiation will further make the price gap much more.The analysis of homogenization in two-sided market is very general, but the differentiation is much often can be seen. In two-sided market, the differentiation includes user differentiation and platform differentiation. User differentiation reflects in the difference of product quality and user preference, and platform differentiation mainly displays in the service way of platform. When platforms are homogeneity, users will only choose one platform to trade, but in heterogeneous platforms, users could participate in multiple platforms.This paper assumes that users only chose one platform when users are different; users choose more than one platform when platforms are different. In order to investigate different pricing strategies of platform differentiation, the paper constructs different models. Price increases with the scale of monopoly platforms when users are different, competitive platforms charge high when users are much more different. However, when platforms are heterogeneous, platforms’prices vary with the buyers and the sellers’ cross network externalities.