Abstract
The paper discusses the optimal strategies of a two-sided monopoly platform where the platform offers price discount to buyers. The platform uses advertising instruments to transmit information about discount to buyers and also provides service to its buyers. Although discount adds utility to buyers only, it affects per-interaction price of both buyers and sellers because of the presence of indirect network externality. The model analysis shows that service quality and level of advertisement will reduce unambiguously with discount for the monopoly platform. A comparison of monopoly equilibrium with the social optimum reveals that the monopoly platform sets higher service quality compared to the social planner.
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