Product design and pricing decisions in platform-based co-creation

Abstract

Co-creation, a new business model that requires platform enterprises, manufacturers, and even consumers to participate in product research and development, has become increasingly popular in recent years. Simultaneously, technological advances in platforms have provided a convenient channel for consumers to contribute creative ideas in co-creation activities, providing an opportunity to rebuild business models. In this study, we consider a setting where a platform enterprise, a manufacturer, and a group of consumers jointly design and produce a co-created product. We focus on how a platform impacts co-creation. In the co-creation process, the platform integrates the consumers’ ideas and chooses a product innovation design (i.e., either an aesthetic-oriented or a functionality-oriented product design), after which the manufacturer sells the co-created product in a heterogeneous market. We demonstrate that each type of product innovation design has its own scope of application, and neither is strictly dominant. We find that when the product value exerted by consumers is higher than a certain threshold, a lose-lose situation may occur for the profits of the platform and manufacturer. Furthermore, we endogenize the consumers’ effort decisions in co-creation and find that each type of product innovation design can still be the equilibrium strategy.