The analysis of advertising pricing based on the two-sided markets theory in social network

Abstract

The mushroom development of social networks has brought opportunity to the analysis of social ad pricing. On the one hand, compare with traditional ad pricing, social networks advertising pricing (SNAP) enables greater consumer surplus and profits to social network companies; On the other hand, reasonable SNAP can provide guidance to network users and advertisers and coordinate the interests between bilateral participants to maximize their behavior. In this regard, using the methodology of bilateral market, this paper firstly analyzed the conduct of bilateral participants to maximize the benefits of social network companies. Secondly, the paper investigates the characteristics of bilateral markets and social networks comprehensively and proposes the Relation-Intensity Model (R-I model) to measure the strength of social relation to optimal ad asking price. Finally, the paper draws a conclusion that the SNAP increases along with the growth of the number of users at first and performs a downward trend after the number of users comes to a certain value (threshold). Thus, the paper explains that after exceeding certain amount of users (a higher network clustering coefficient), the price elasticity of demand of advertising is relatively large, lower price for the enterprise can realize higher profits, i.e. the scale effect of advertising exceeds its price effect.