Price competition strategy of internet platforms

Abstract

This paper generalizes the economic features of internet platforms and analyses their competitive strategies with the method of insulating pricing. The analysis focuses on the quantity expectations game of platforms and their price expectations game. The function of network externalities on the internet platforms has an obvious feature of two stages, so their competitive strategies have to be divided into two distinct phases. Before the critical mass stage, companies need to pursue a rapid increase of subscribers in order to survive. After the critical capacity, differentiation strategy can be implemented by platform companies which seek maximum profit by the action of network externalities.