Regulating platform competition in two-sided markets under the O2O era

Online-to-offline (O2O) services permeate our daily life and consumption along with the advanced technology in e-commerce. In this study, motivated by taxi-hailing market case, we analyze the effect of government regulations on competition in two-sided markets featured network externality under the O2O era. First, a model with Hotelling specification is formulated to describe the competition in taxi-hailing markets using subsidies as decision variables. In the model, platforms subsidize two sides agents labeled drivers and passengers, and the subsidies are given based on whether a state of membership or every transaction. Second, government regulations are introduced into the model by adding corresponding modification into agents' utility, and new consequent market equilibriums are compared with the benchmark status. Major findings of this work include: i) the effects of price adjustments regulation depend largely on relative size of mutual network externalities, which causes a negative impact on social welfare except for extreme size level; ii) butt joint with official platforms brings down platforms' cost in both sides so that companies make more profits, where social welfare including consumer surplus and profits increases; iii) forbiddance setting in time limited usage scarifies a little economic effectiveness to ensure better safety.