Does corporate social responsibility solve the chicken‐and‐egg problem for a two‐sided platform?

Abstract

In this paper, we determine which of the two distinct and interdependent markets (or sides) a monopoly platform assigns the greatest social importance when hybrid network expectations matter. We solve a two‐stage program. In the first stage, the platform chooses the profit‐maximizing social concern levels. In the second stage, it sets the prices that maximize the ala Goering payoff function. In the pricing equilibrium, we define social externalities, that is, the CSR‐related empathy of one side drives the platform to lower the price on that side, thereby improving consumer welfare. In the social concern equilibrium, we establish a CSR cost recovery condition according to which the benefit foregone by the platform on one side, because of CSR, is fully compensated by the revenue it earns from the participation of uninformed agents on the other side. In addition, we deduce that the platform uses its optimal CSR policy on one side as a strategic tool to reduce opacity on the other side. In this regard, the platform designs a divide‐and‐conquer CSR strategy in order to achieve its first‐best outcome, get both groups on board, and thus solve the chicken‐and‐egg problem. Appropriately, by comparing the optimal social concern levels to each other, we interestingly figure out that the platform is more socially concerned on the money side although the subsidy side involves the highest fraction of uninformed consumers.