Cooperation and decision making in a two-sided market motivated by the externality of a third-party social media platform

Abstract

In recent years, with the rapid development of Internet technology, the integration of platform economy and e-commerce has become a popular business model. Two-sided platforms have a specific impact on sales, customer experience and transaction efficiency of both sides. In the current severe situation caused by the coronavirus pandemic, both the traditional unilateral market platform and the emerging two-sided market platform are in urgent need of a change in operation mode to reduce the marketing cost. Inspired by the cooperation between Meituan, a two-sided platform, and WeChat, a social media platform, this paper investigates the two-sided platform's scalable decisions on when to cooperate and how to optimize the pricing and investment decisions. We analyze how the two-sided platform makes decisions by considering the changes of network externalities from the cooperation with the social network platform. Compared with the scenario of non-cooperation, we derive the conditions under which platform cooperation can increase demands and increase platforms' profits, and analyze how cooperation affects the optimal pricing strategies. We find that the cooperation leads to a larger demand and a higher total profit, but might lead to higher registration prices for the platform users. Furthermore, we adopt the Nash bargaining framework and introduce platform bargaining power parameters to obtain the optimal cooperation and sharing strategy. Finally, we show how to adjust the investment strategy of the two-sided platform under platform cooperation.

Platform opening and cooperation: a literature review and research agenda

“…, 2021a; Qin et al. , 2020), two-sided platforms (Zhu et al. , 2021), luxury rental platforms (Feng, 2020) and so on.…”

“…Two-sided platforms often have the attribute of network externality. Specifically, through this intermediate connection, the utility of one group of users (or agents) will be affected by that of another group of users (Zhu et al. , 2021).…”

“…(2021) find that when the commission rate is high or the fixed payout ratio is low, cooperation can yield a win-win-win outcome for the platform, customers and drivers. Inspired by the cooperation between Meituan, a two-sided platform, and WeChat, a social media platform, Zhu et al. (2021) investigates the two-sided platform's scalable decisions on when to cooperate and how to optimize the pricing and investment decisions.…”

“…At present, a few scholars have noticed this, such as the cooperation between the e-commerce platform and social platform (Liu et al. , 2021a), and the cooperation between the food delivery platform and social platform (Zhu et al. , 2021).…”

“…For example, scholars in the field of operation management and business pay attention to how to achieve a win-win situation through cooperation (Fan et al. , 2020; Zhu et al. , 2021).…”