Bilateral value-added services and pricing strategies of the third-party platform considering the cross-network externality

Abstract

This paper studies bilateral value-added services and pricing strategies of the third-party platform for manufacturing, in which we consider the cross-network externality and value-added service affecting the utility of manufacturers and suppliers joining the platform. By constructing a game theory model, we analyze the optimal decisions of the platform, and propose four different bilateral value-added service and pricing strategies, then discuss the influence of the cross-network externality strengths on the optimal decisions of the platform as well as the impact of the platform providing value-added services. Our results show that the platform’s service efficiencies determine the difference of its bilateral value-added service levels. The platform will provide a higher service level for the side with higher service efficiency, but not always charge them more. When the service efficiency to manufacturers is higher than that to suppliers, the platform provides a relatively high value-added service level with a relatively low price for manufacturers and a relatively low value-added service level with a relatively high price for suppliers in some conditions. Moreover, the strengths of the manufacturer’s and the supplier’s cross-network externality have different effects on the optimal decisions of the platform. With the supplier’s cross-network externality strength increasing, the platform may increase the value-added service level and the price for both manufacturers and suppliers. But with the manufacturer’s cross-network externality strength increasing, the platform won’t do that anymore. It will always increase the value-added service level but reduce the price for manufacturers. Meanwhile, it will increase both the value-added service level and the price for suppliers. Besides, comparing with the case of no value-added services, we find that when the platform provides value-added services for bilateral users, the platform always charges suppliers a higher price, but may charge manufacturers a lower price.