Platform Pricing with Strategic Buyers

Digital platforms are ubiquitous. While there has been a growing academic literature on platform strategies, little is known about platform pricing when buyers are strategic. In contrast to myopic buyers--who make decisions solely based on their current period utility, strategic buyers take into account future period utility in their decision making. They may wait-and-see, enter-early, or free-ride, in responding to key platform-specific factors such as cross-side network effects, and switching cost. Using a two-period analytical model, we derive optimal buyer-side pricing strategies for a monopolistic platform owner under three prevalent pricing models: subscription-based, license-based, and time-limited freemium (TLF). Compared with myopic buyers, strategic buyers do not affect optimal pricing strategies under the subscription model or under TLF with no switching cost, but significantly change optimal pricing strategies and adoption dynamics under the license model and under TLF with positive switching costs. The three models are also compared numerically.