Optimal two-period pricing decisions and value-added service strategies of two-sided platform considering suppliers entry timing

Abstract

The flourishing platform business model has been rapidly integrated into manufacturing industries, and value-added service (VAS) provided by the platforms has become a critical part of enhancing competitiveness. This study investigates the optimal two-period pricing decisions and VAS strategies of the two-sided platform for manufacturing. For both the supplier and manufacturer side, the platform decides the entry fees in each period and provides differentiated quality of basic services, as well as the VAS (if any). Moreover, the manufacturer's utility of accessing is influenced by the cross-network externality, which is related to the number of suppliers in each period. In the presence of the supplier's varying entry timing, three VAS strategies are available for the platform including: (1) VAS for suppliers in Period 1 (Model S1), (2) VAS for suppliers in Period 2 (Model S2), and (3) VAS for manufacturers in Period 1 or 2 (Model M). We establish a two-period game model under each VAS strategy. Then, the optimal platform's pricing decisions are derived, and the optimal performances in three VAS strategies are compared. Findings demonstrate that when the cross-network externality strength is large, the platform always prefers Model S1; only when both the cross-network externality strength and quality of the platform's basic service are comparatively low, the platform selects Model S2; otherwise, the platform chooses Model M. This study also extends to the scenario that the platform provides bilateral VAS in Period 1 (Model B1) or Period 2 (Model B2). Notably, the platform is not always willing to offer bilateral VAS, especially when the VAS cost coefficient is relatively high.