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Multi-period price competition of blockchain-technology-supported and traditional platforms under network effect

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  • Ting Zhang
  • Peimiao Li
  • Ningning Wang

Abstract

We build a multi-period pricing model between a blockchain-technology-supported platform and a traditional platform, where the blockchain-technology-supported platform provides a higher value for customers. Customers are influenced by network effect, that is, they value a platform more if the platform has more users. As either platform can adopt static pricing or dynamic pricing, four scenarios may occur. By deriving the equilibrium of each scenario, we reveal the 'Matthew effect' caused by network effect, that platform advantage (from adopting blockchain technology) or disadvantage (from not adopting blockchain technology) accumulates as time goes by. Thus, platforms are advised to adopt the blockchain technology antecedent to the competitors. Network effect, which amplifies the benefit of initial users, may intensify price competition and harm both platforms. By comparing the four scenarios, we derive the equilibrium pricing strategies: when network effect is weak, one platform adopts static pricing and the other adopts dynamic pricing; when network effect is medium, the blockchain-technology-supported platform adopts static pricing and the traditional platform adopts dynamic pricing; and when network effect is strong, both platforms adopt dynamic pricing. Dynamic pricing is more desirable for the traditional platform relative to the blockchain-technology-supported platform.

Suggested Citation

  • Ting Zhang & Peimiao Li & Ningning Wang, 2023. "Multi-period price competition of blockchain-technology-supported and traditional platforms under network effect," International Journal of Production Research, Taylor & Francis Journals, vol. 61(11), pages 3829-3843, June.
    • Handle: RePEc:taf:tprsxx:v:61:y:2023:i:11:p:3829-3843
    DOI: 10.1080/00207543.2021.1884308
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    Cited by:

    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. Lu, Bo & Fan, Lijie & Wang, Huipo & Moon, Ilkyeong, 2024. "Price-cutting or incentive? Differentiated competition between regional asymmetric ports," Transport Policy, Elsevier, vol. 147(C), pages 215-231.

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