Online Healthcare Platform Evolution: The Interplay of Bargaining and Network Effects

Abstract

Healthcare needs have been growing rapidly in many countries as populations age. Recently, ecosystems with online platforms at their center have emerged to address this need. This is because these platforms can scale rapidly, increasing healthcare access and equity. The speed of scaling depends on the network effects across healthcare providers and consumers on the platform. The network effects also impact the bargained prices for healthcare providers, which in turn impact the platform's profits and growth rate. We develop a novel framework that combines theories of network effects and bargaining to examine the evolution of online healthcare platforms as they balance the conflicting objectives of growth and profitability. We apply our framework to data from a major Chinese online healthcare platform that links hospitals and consumers for preventive health exams. Our results show that hospitals that provide a stronger (weaker) inducement to consumers to join the platform, i.e., exhibit higher (lower) cross-network effects, extract more (less) economic value from the platform. Using a series of simulations, we provide insights for the platform in terms of resource allocation to balance growth and profitability. Consumers participating in this ecosystem also see a monetary benefit equivalent to two hours of minimum wages.