IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v13y2021i24p13701-d700367.html
   My bibliography  Save this article

Video Platforms’ Value-Added Service Investments and Pricing Strategies for Advertisers

Author

Listed:
  • Gang Liu

    (School of Business, East China University of Science and Technology, Shanghai 200237, China)

  • Fengyue An

    (School of Business, East China University of Science and Technology, Shanghai 200237, China)

Abstract

Using a game-theoretical approach, this paper develops a duopoly model and examines value-added service (VAS) investments and pricing strategies on video platforms with opposite inter-group network externalities between two groups. We consider two scenarios with VAS investment, namely, a single platform investing in VASs for advertisers (S-Model) and both platforms investing in VASs for advertisers (B-Model). We found the following: (i) In the S-Model, the investing platform’s VAS level remains maximum when the marginal investing cost is low; otherwise, it decreases with the cost. Investing and non-investing platforms’ advertising prices are unaffected by the marginal investing cost if the cost is low; otherwise, the prices decrease and increase with the cost, respectively. Furthermore, the investing platform’s advertising price is higher than the non-investing platform’s. (ii) In the B-Model, the two platforms’ VAS levels remain maximum if the marginal investing cost is low; otherwise, they decrease with the cost. The two platforms’ advertising prices are equal and irrelevant to the marginal investing cost. (iii) The investing platform’s VAS level in the S-Model is higher than or the same as that in the B-Model and the investing platform’s advertising price in the S-Model is higher than that in the B-Model. (iv) Compared to the scenario without VAS investment, the investing platform’s advertising price is higher in the S-Model, but the same in the B-Model.

Suggested Citation

  • Gang Liu & Fengyue An, 2021. "Video Platforms’ Value-Added Service Investments and Pricing Strategies for Advertisers," Sustainability, MDPI, vol. 13(24), pages 1-24, December.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:24:p:13701-:d:700367
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/13/24/13701/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/13/24/13701/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Anna D’Annunzio & Antonio Russo, 2020. "Ad Networks and Consumer Tracking," Management Science, INFORMS, vol. 66(11), pages 5040-5058, November.
    2. Dietl, Helmut & Lang, Markus & Lin, Panlang, 2013. "Advertising pricing models in media markets: Lump-sum versus per-consumer charges," Information Economics and Policy, Elsevier, vol. 25(4), pages 257-271.
    3. Guowei Dou & Ping He & Xiaoyan Xu, 2016. "One-side value-added service investment and pricing strategies for a two-sided platform," International Journal of Production Research, Taylor & Francis Journals, vol. 54(13), pages 3808-3821, July.
    4. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).
    5. Greiner, Tanja & Sahm, Marco, 2018. "How effective are advertising bans? On the demand for quality in two-sided media markets," Munich Reprints in Economics 62822, University of Munich, Department of Economics.
    6. Pan, Lijun, 2017. "Endogenous Choice On Advertising Pricing Of Media Platforms: Lump-Sum Fee Vs. Proportional Fee," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 58(1), pages 21-40, June.
    7. Greiner, Tanja & Sahm, Marco, 2018. "How effective are advertising bans? On the demand for quality in two-sided media markets," Information Economics and Policy, Elsevier, vol. 43(C), pages 48-60.
    8. Andrei Hagiu & Daniel Spulber, 2013. "First-Party Content and Coordination in Two-Sided Markets," Management Science, INFORMS, vol. 59(4), pages 933-949, April.
    9. Carroni, Elias & Paolini, Dimitri, 2020. "Business models for streaming platforms: Content acquisition, advertising and users," Information Economics and Policy, Elsevier, vol. 52(C).
    10. Sato, Susumu, 2019. "Freemium as optimal menu pricing," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 480-510.
    11. Zennyo, Yusuke, 2020. "Freemium competition among ad-sponsored platforms," Information Economics and Policy, Elsevier, vol. 50(C).
    12. Calvano, Emilio & Polo, Michele, 2021. "Market power, competition and innovation in digital markets: A survey," Information Economics and Policy, Elsevier, vol. 54(C).
    13. Jianxin Ge & Tong Li, 2019. "Entrepreneurial Resources, Complementary Assets, and Platform Sustainability," Sustainability, MDPI, vol. 11(16), pages 1-20, August.
    14. Reisinger, Markus, 2012. "Platform competition for advertisers and users in media markets," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 243-252.
    15. Wilfred Amaldoss & Jinzhao Du & Woochoel Shin, 2021. "Media Platforms’ Content Provision Strategies and Sources of Profits," Decision Analysis, INFORMS, vol. 40(3), pages 527-547, May-June.
    16. Burcu Tan & Edward G. Anderson, Jr. & Geoffrey G. Parker, 2020. "Platform Pricing and Investment to Drive Third-Party Value Creation in Two-Sided Networks," Information Systems Research, INFORMS, vol. 31(1), pages 217-239, March.
    17. Lijun PAN, 2017. "Pricing of Media Platforms with Vertical Differentiation," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 51(1), pages 249-262.
    18. Simon P. Anderson & Øystein Foros & Hans Jarle Kind, 2018. "Competition for Advertisers and for Viewers in Media Markets," Economic Journal, Royal Economic Society, vol. 128(608), pages 34-54, February.
    19. Xie, Jiaping & Zhu, Weijun & Wei, Lihong & Liang, Ling, 2021. "Platform competition with partial multi-homing: When both same-side and cross-side network effects exist," International Journal of Production Economics, Elsevier, vol. 233(C).
    20. Dindaroğlu, Burak, 2018. "Competitive advertising on broadcasting channels and consumer welfare," Information Economics and Policy, Elsevier, vol. 42(C), pages 66-75.
    21. Shengshuo Xu & Liuyi Ling, 2020. "Which is the Optimal Commercial Mode for a Video Site: Paid, Free, or Hybrid?," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 37(05), pages 1-18, October.
    22. Kyeonggook Francis Park & Robert Seamans & Feng Zhu, 2021. "Homing and platform responses to entry: Historical evidence from the U.S. newspaper industry," Strategic Management Journal, Wiley Blackwell, vol. 42(4), pages 684-709, April.
    23. Edward G. Anderson & Geoffrey G. Parker & Burcu Tan, 2014. "Platform Performance Investment in the Presence of Network Externalities," Information Systems Research, INFORMS, vol. 25(1), pages 152-172, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sui, Ronghua & Liu, Molin & Liu, Yi & Zha, Xiaoyu, 2024. "Two-sided dynamic pricing and value-added service investment strategies of competitive platforms considering indirect network effects," International Journal of Production Economics, Elsevier, vol. 272(C).
    2. Zhu, Weijun & Xie, Jiaping & Xia, Yu & Wei, Lihong & Liang, Ling, 2023. "Getting more third-party participants on board: Optimal pricing and investment decisions in competitive platform ecosystems," European Journal of Operational Research, Elsevier, vol. 307(1), pages 177-192.
    3. Li, Jianbin & Wang, Yingying & Liu, Zhixin & Cai, Xueyuan & Xie, Wen, 2022. "Joint optimal strategies on service investment and drug pricing for a two-sided online pharmaceutical platform," International Journal of Production Economics, Elsevier, vol. 252(C).
    4. Xiaoxi Zhu & Changhui Yang & Kai Liu & Rui Zhang & Qingquan Jiang, 2022. "Cooperation and decision making in a two-sided market motivated by the externality of a third-party social media platform," Annals of Operations Research, Springer, vol. 316(1), pages 117-142, September.
    5. Jin Li & Gary Pisano & Yejia Xu & Feng Zhu, 2023. "Marketplace Scalability and Strategic Use of Platform Investment," Management Science, INFORMS, vol. 69(7), pages 3958-3975, July.
    6. Christian Stummer & Dennis Kundisch & Reinhold Decker, 2018. "Platform Launch Strategies," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 60(2), pages 167-173, April.
    7. Tang, Hua & Chen, Jing & Ai, Xingzheng & Li, Xiaojing & He, Haojia, 2023. "First-party content decision under competitive hardware/software platforms: Free vs. charge," European Journal of Operational Research, Elsevier, vol. 311(3), pages 1068-1083.
    8. Jullien, Bruno & Pavan, Alessandro & Rysman, Marc, 2021. "Two-sided Markets, Pricing, and Network Effects," TSE Working Papers 21-1238, Toulouse School of Economics (TSE).
    9. Qihong Liu & Daniel Nedelescu & Ji Gu, 2021. "The impact of strategic agents in two-sided markets," Journal of Economics, Springer, vol. 134(3), pages 195-218, December.
    10. Zennyo, Yusuke, 2020. "Freemium competition among ad-sponsored platforms," Information Economics and Policy, Elsevier, vol. 50(C).
    11. Hua Tang & Xingzheng Ai & Haojia He & Songbo Guo, 2024. "Business expansion strategy of two competing software platforms: envelopment vs. connection," Electronic Commerce Research, Springer, vol. 24(4), pages 2239-2265, December.
    12. Sui, Ronghua & Zhang, Xumei & Dan, Bin & Zhang, Haiyue & Liu, Yi, 2023. "Bilateral value-added service investment in platform competition with cross-side network effects under multihoming," European Journal of Operational Research, Elsevier, vol. 304(3), pages 952-963.
    13. Esther Gal-Or & Ronen Gal-Or & Nabita Penmetsa, 2018. "The Role of User Privacy Concerns in Shaping Competition Among Platforms," Information Systems Research, INFORMS, vol. 29(3), pages 698-722, September.
    14. Changying Li & Youping Li & Jianhu Zhang, 2023. "On the regulation of public broadcasting," Journal of Economics, Springer, vol. 138(2), pages 129-146, March.
    15. Yifan Dou & D. J. Wu, 2021. "Platform Competition Under Network Effects: Piggybacking and Optimal Subsidization," Information Systems Research, INFORMS, vol. 32(3), pages 820-835, September.
    16. Margarita De-Miguel-Guzmán & Carlos Ronquillo-Bolaños & Alexander Sánchez-Rodríguez & Gelmar García-Vidal & Reyner Pérez-Campdesuñer & Rodobaldo Martínez-Vivar, 2020. "Analysis of the Effectiveness of Advertising Messages. Comparison by Media, Typology, and Schedule of Advertisements," Tržište/Market, Faculty of Economics and Business, University of Zagreb, vol. 32(1), pages 27-46.
    17. Zhijun Chen & pch346 & Chongwoo Choe & Jiajia Cong & Noriaki Matsushima, 2020. "Data-Driven Mergers and Personalization," Monash Economics Working Papers 16-20, Monash University, Department of Economics.
    18. Jens Foerderer & Thomas Kude & Sunil Mithas & Armin Heinzl, 2018. "Does Platform Owner’s Entry Crowd Out Innovation? Evidence from Google Photos," Information Systems Research, INFORMS, vol. 29(2), pages 444-460, June.
    19. Martin Peitz, 2024. "The Economic Theory of Two-Sided Platforms," CRC TR 224 Discussion Paper Series crctr224_2024_584, University of Bonn and University of Mannheim, Germany.
    20. Graef, Inge & Prüfer, Jens, 2021. "Governance of data sharing: A law & economics proposal," Research Policy, Elsevier, vol. 50(9).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:13:y:2021:i:24:p:13701-:d:700367. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.