Pricing Power Conflict and Cooperation Strategies of Competing Two-Sided Platforms: Impact of the Differentiated Value-Added Services and Cross-Network Effects

Abstract

Since pricing power plays a pivot role in platforms' pricing strategies and services investment, thereby influencing the competitive landscape between the two platforms. This study investigates the pricing power preferences within a two-sided manufacturing platform ecosystem, where a large-scale platform (platform L) competes with a small-specialized platform (platform R) for bilateral users through differentiated value-added services (VAS) level. Both platforms exhibit cross-network externality and engage in pricing power competition. Three endogenous pricing power modes are available, including horizontal Nash (mode B), platform L-price-leader Stackelberg (mode L), and platform R-price-leader Stackelberg (mode R). The optimal solutions under each mode and characterize the equilibrium evolution of pricing power preferences are derived. Findings reveal that at the low VAS level stage for platform L, mode R realizes equilibrium when the hassle cost is low; mode L realizes equilibrium when the hassle cost is high. At the high VAS level stage for platform L, mode L realizes equilibrium when the hassle cost is high; mode R realizes equilibrium only when the hassle cost is low and cross-network externality is in a high range. Notably, competing platforms will trap into the pricing power conflict when both platforms strategically second moves in announcing prices. Therefore, this study proposes two feasible strategies for platform cooperation: joint revenue and VAS cost-sharing and transfer payment. These strategies can reach a “win–win” outcome when sharing ratios are moderate or payment meets suitable thresholds. This study not only enhances the theory of two-sided markets but also provides strategic guidance for platform competition and cooperation.