Study On Platform Pricing Strategy Under Intra-Group Network Externality

The development of the internet makes the change of business model from the traditional way to the way of electronic commerce. Almost every aspect of people’s life can be fulfilled through the internet. People don’t need to go to the traditional shop for things they need anymore. With the help of the internet and the equipments, consumers can select and purchase products made all over the world on different kinds of online shopping platforms. Similar to it are the apps for taking a taxi, group-buying websites, platforms for meal ordering as well as bank card platforms and operation system platforms and so on. The common feature of these platforms is attracting both the providers and the demanders of the products and services to the platforms. The two groups can finish all the process of a transaction on the platform, which acts as an intermediary. Another feature is the number of one group’s member exercises a great influence on the other side. This kind of platform can be defined as the two-sided market. In traditional one-sided markets, only merchants have the complete information while consumers don’t. The online-review function just makes up for the problem mentioned before. With the online-review function, consumers are allowed to publish their own experience on the platform. Other consumers can get more information to help making decisions. Therefore the intra-group network externality of the customers exists on the platform with online-review function.The main research problem of the two-sided market is how the platform making pricing strategy. Most existing researches are about how to make pricing strategy with the inter-group network externality. This paper takes the intra-group network externality brought by consumers’online-review into consideration. How does the intra-group externality affect the platform pricing strategy? First part of the paper gives a brief introduction about the definition and characteristic of the two-sided market. Also it makes a summary of existing research about pricing strategy. The innovation of this paper is that it considers the intra-group network externality brought by online-review as a factor influencing the platform pricing strategy. And this paper builds two kinds of models:monopoly model as well as competitive model. In the monopoly model, whether the platform gives consumers subsidy is considered in the pricing strategy problem. The effect of online-review can be positive or negative. The research shows that if the intra-group network externality is positive, the profit of the platform will rise first then go down. So keep the number of online-review under control can help the platform get the greatest profit. It is also found that for both platform cases in a situation that the brand effect is formed in the market, more customers will be attracted if the negative effect of intra-group network externality is greater. Therefore, the platform will be more profitable. However, when the effects of the inter-group network externality are brought by customers’ on-line review comments is positive, the profit will decrease for the inter-group network externality effect exceeds a certain degree caused by too many review comments. Consumers will lose patience, which in turn harms the platform efficiency. Therefore, we maximize the profit of platforms through methods of controlling the review comments published on the platforms.