Integration of third-party platforms: Does it really hurt them?

Abstract

The fourth-party platform provides an alternative consumption channel that greatly saves transaction costs. As a new e-commerce phenomenon that appears more in the service industry, it integrates the original third-party platforms and is about to gain considerable development. This paper investigates whether it is favorable for a third-party platform to join the fourth-party platform. The best choice of third-party platform is discussed from three dimensions of profit, consumer surplus and social welfare. The Hotelling model and Pyramid Spatial model are established to describe the competition between different platforms and the choice of agents, and the Stackelberg game is constructed with commission rates as the decision variables. The main conclusions of this study include: i) the impact of commission rates is largely dependent on the business model of the third-party platform, such as the price of the service sold and whether it is consumer-oriented; ii) when the optimal commission rates are adopted by platforms, joining the fourth-party platform can bring greater profits to the consumer-oriented third-party platform and create greater consumer surplus and social welfare. This paper fills the gap of existing literature by providing decision support for the third-party platform under the vigorous development of the fourth-party platform.