Competitive Strategy Research Of A Two-stage Trading Platform Under Two-sided Markets

Along with the popularity of mobile Internet and the development of information technology, trading platform is enjoying an unprecedented period of development. On the one hand, this new type of transaction model broke the boundaries of the traditional market, any consumers cantrade with any producers theoretically, which means inter-temporal and cross-regional transactions becomes possible; On the other hand, consumers can save a lot of costs through the search, payment and logistics system or other systemic trading system. In this context, many powerful enterprises set foot in online network, in an attempt to obtain a certain size before the market is saturated. There is a market and there will be the competition, but the competition in the trading platform showed with two new features: the first competition is for the user. Whether the incumbent or new entering platform, will stick to the principle of “the user is for all”, they constantly create better shopping experience for the user, the user’s role is becoming more and more important compared to the traditional single market. Followed by theintense competition,there is no absolute leader and follower in this market, the market clearing time is very short, a slightly mistakewillruin out all theoriginalcompetitive advantage.This paper tries to use the two-sided market theory to answer “How electric business platform lay down the competition strategy in the process of development”. We, by constructing a two stage Hotelling model that containsinitial and stable phases, analyze the competitive environment and countermeasures of trading platform in different stages of competition. On the drafting order, we first describe the characteristics of trading platform under the framework of two-sided market, we found that users and pricing are the two focus of attention in the development of trading platform, and the emphasis of the platform in different stages will be different.Based on this, we dividend the development of trading platform into two stages: the initial stage and stable stage. The initial stage’s prime task is to attract more users, to prevent the platform die before the scale effect is detonating; theplatform mainly solves the problem of crowding effect and the competition from other potential entrants in the stable stage. In the model parameters, we extend the content of network externalities and consider the direct network externalities into the model, which makes our discussion more accuracy with the actual situation of electric business platform.In our research, wefound that the trading platformwill present to differentiate featuresin different stages of competition. Specifically, the primary target of the platform is formed the minimum network sizein the market, so seize the user will be the key to win in initial stage. In this period, theplatform will take free entry fee strategy to attract users to join, and the network externality is positive, platform can continue to get new users through bilateral positive feedback and eventually developsinto the stable stage. In the stable stage, the bilateral user scale has been formed. At this stage, bilateral inter-group network externalities can continue to attract users to join into the platform. What’s more, the platform will face the impact of crowding effect with the increasingof users, and the direct network externality is negative. The platform’s strategy transferred from quantity competition to quality competition. In order to reduce the crowding effect, improve the user’s transaction efficiency, the platform began to take entry fee to improve the access threshold, and in order not to lose the original high-quality customers, the platform will increase the switching costs of downstream consumersto consolidate its scale effect.Differentiation strategies become a first choice of the stabilization platform.Finally, we confirm our conclusion through the caseof taobao.com.