Pricing and Service Strategies for Two-sided Platforms

Abstract

Nowadays, more and more transactions or interactions like online dating and shopping are completed on two-sided platforms involving two groups of agents. On these two-sided platforms, there often exist cross-network effects, i.e., the benefits that agents at one side receive are positively related to the number of agents at the other side, and vice versa. This paper considers such two-sided platforms, where the platforms offer a certain service to attract agents of both sides to join the platforms, and then charge agents who join the platforms a lump-sum fee to gain the profit. We present service and pricing strategies for both monopolistic and duopolistic platforms, respectively. We also investigate the impact of platforms’ life cycle on their service and pricing strategies. Some managerial implications are shown.

Keywords

Two-sided markets / cross-network effects / service level / platform pricing / multi-homing

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