PRICING STRATEGY OF A TWO-SIDED PLATFORM UNDER CONSUMER CATEGORIZATION

Author: 

Guowei Dou
Xudong Lin
Robert Chi
Zunxin Zheng

Abstract: 

Many two-sided platforms categorize consumers into distinct groups according to their levels of activity. This study investigates a platform’s pricing strategy when consumers are categorized into two distinct groups. By modeling a per-transaction fee in the platform’s profit-maximizing objective, equilibrium results are derived for scenarios with and without consumer categorization. Then, the two scenarios are compared to explore the impact of categorizing consumers on the fees charged to users on both sides and the platform’s profit. It is shown that, under consumer categorization, although sellers are charged a higher per-transaction fee, the expected profit is enlarged, and both the market scale and platform profit increase. The incremental profit of the platform first increases and then decreases in relation to the proportion of active consumers, and the benefit of categorizing consumers is maximized when active consumers are more than a half of the total.

Key Word: 

Published Date: 

May, 2020

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