Value-added service investment and pricing decisions in two-sided platform: the role of user expectations
ISSN: 0368-492X
Article publication date: 23 May 2023
Issue publication date: 29 January 2024
Abstract
Purpose
This paper aims to investigate how user expectations affect value-added service (VAS) investment and pricing decisions of two-sided platforms. It draws on the information asymmetry theory and offers suggestions on how platform operators can manage user expectations.
Design/methodology/approach
According to the game theory, this study considers three user expectations (responsive, passive and wary). By framing the Hotelling duopoly model and comparing the VAS investment, price and platform profits, the optimal platform decision is analyzed and discussed.
Findings
The conclusions demonstrate that the monopolistic two-sided platform obtains more profits from the informed users with responsive expectations than uninformed users with passive or wary expectations. The marginal investment cost and cross-network externalities are two key factors that determine the platform's VAS investment and pricing strategies of passive or wary users. Furthermore, considering the expectation preferences, i.e. the uniformed users hold wary expectations with more information and hold passive expectations with less or no information, the results suggest that the proportion of wary users to all uninformed users increases the platform's VAS investment, profits and the price of informed users, and increase (decrease) the price of uninformed users when the cross-network externalities of informed users are relatively small (larger).
Practical implications
These results can provide insightful enlightenment into how platform operators utilize bilateral users' expectations and information level to guide their VAS investment and pricing decisions.
Originality/value
This paper is one of the first to explore the impact of three user expectations and the heterogeneity of preferences in informing users' passive or wary expectations, based on different levels of information on the decision-making of two-sided platforms regarding VAS.
Keywords
Acknowledgements
Funding: This research was funded by the National Natural Science Foundation of China (Grant #: 72071002, 71801003); Natural Science Foundation of Anhui Province (Grant #: 2008085MG229); Scientific Project for Doctors of Anhui Polytechnic University (Grant #: 2021YQQ055); The Scientific Research Foundation of Anhui Higher Education Institutions of China (Grant #: 2022AH050976).
Citation
Gui, Y., Zhai, H., Dong, F. and Liu, Z. (2024), "Value-added service investment and pricing decisions in two-sided platform: the role of user expectations", Kybernetes, Vol. 53 No. 2, pp. 557-579. https://doi.org/10.1108/K-01-2023-0087
Publisher
:Emerald Publishing Limited
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