A study of pricing strategy in platform business: a multi-agent simulation approach

Abstract

The platform business has attracted an increasing amount of attention from industry professionals and academics alike. Although a low pricing strategy is effective for increasing the number of users in the platform business, it remains unclear if a low pricing strategy increases profits for platform providers. To address this issue, we employed multi-agent simulation techniques to analyse the influence of pricing strategy on platform provider’s profit. First, we constructed a user behavioural model which incorporates both cross-side network effects and same-side network effects. In this model, we treated consumers, suppliers, and advertisers as platform users. Next, the simulations demonstrated that a low pricing strategy generates greater profit than a high pricing strategy when the suppliers’ and advertisers’ same-side network effects are negative. Taken together, the results of this study suggest that platform providers must choose a pricing strategy on the basis of the impact of same-side network effects.