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

Author

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  • Xiaoxi Zhu

    (Hefei University of Technology
    Key Laboratory of Process Optimization and Intelligent Decision-Making of Ministry of Education)

  • Changhui Yang

    (Hefei University of Technology
    Key Laboratory of Process Optimization and Intelligent Decision-Making of Ministry of Education)

  • Kai Liu

    (Hefei University of Technology)

  • Rui Zhang

    (Xiamen University of Technology)

  • Qingquan Jiang

    (Xiamen University of Technology)

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.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:annopr:v:316:y:2022:i:1:d:10.1007_s10479-021-04109-w
    DOI: 10.1007/s10479-021-04109-w
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