Value-added service investment and pricing strategies of a multilateral distribution platform considering user-homing in a duopoly

Abstract

In reality, there are many multilateral distribution platforms that compete with each other. There are differences in user-homing: some users belong to only one platform, while some belong to multiple platforms. In addition, to attract more consumers, these platforms often invest in value-added services (VASs). In this paper, combining utility theory and Hoteling model, we investigate the VAS investment and pricing strategies of a multilateral distribution platform with considerations of user-homing and cross-group network externalities in a duopoly. We compare two universal situations: situation S (all consumers, advertisers and delivery staff are single-homing) and situation M (the consumers are single-homing while the advertisers and the delivery staff are partial multi-homing). The main results are as follows: 1) the optimal transaction fee under situation M is higher than that under situation S; 2) the optimal delivery fee and advertising fee under situation S are higher than those under situation M; 3) there is a threshold of the marginal VAS investment cost in both two situations, below which no VAS investing is the optimal choice; and 4) the optimal profits under situation M are higher than those under situation S.