How does cross‐platform externality impact pricing strategies? A two‐stage discriminatory pricing model analysis

Abstract

AbstractThis study delves into the impact of cross‐platform externality on the pricing strategies of platforms, employing a two‐stage discriminatory pricing model. The research reveals several significant findings. Initially, cross‐platform externality exacerbates the “killing the loyal customers” strategy on the access platform, prompting consumers to favor a “one‐time” consumption approach to avoid potential intensification of this strategy. Furthermore, cross‐platform externality serves as a critical trigger for independent competitive platforms; surpassing a critical consumer threshold leads to a shift from the former “killing the loyal customers” strategy to offering more favorable prices for existing customers. Finally, cross‐platform externality leads to reduced prices for consumers on both platforms in both stages, assuming the drainage effect of the open platform is substantially weaker than its enhancement effect on the cross‐network externality of the access platform. During such instances, the cross‐platform externality proves advantageous to consumers. However, with a strengthening drainage effect and increased merchant attraction by the access platform, both platforms may face potential price increases. Notably, cross‐platform externalities provide access platforms with substantial advantages over independent competitors in terms of user scale and profit levels. This advantage progressively grows as cross‐platform externalities increase. However, for the access platform itself, the influx of consumers from the open platform must surpass a minimal threshold before cross‐platform externalities contribute to an increase in the access platform's profit levels. Consequently, if the objective of engaging in platform discriminatory pricing competition is to overcome competitors, integrating with an open platform proves to be an effective approach. However, if the goal is solely to boost one's own profits, embracing an open platform entails certain risks, necessitating the selection of a platform capable of delivering sufficient traffic.