Pricing and Product-bundling Strategies for E-commerce Platforms with Competition

Abstract

We consider pricing and product-bundling strategies for two competing platforms with two groups of agents, customers and sellers (independent content developers). In this paper, two such groups are required to pay the platforms fixed (subscription) fees to gain access; each platform also produces its own integrated content. We investigate the impacts of installed base, mixed bundling, and competition on the platforms’ pricing and product-bundling strategies. We find that in the presence of both installed base and competition, each platform will charge sellers the same fee, regardless of whether the unbundling or mixed-bundling strategy is chosen. However, if the mixed-bundling strategy is used, the prices charged to customers may be higher relative to the unbundling equilibrium. Importantly, our results reveal that the mixed product-bundling strategy can be used as a strategic competitive tool for the competing platforms to seize more market share and induce the platforms to subsidize customers who buy the bundle by charging customers who only access the platforms (without bundling) a higher price. Moreover, we find that the proposed mixed product-bundling strategy is a dominant equilibrium solution for two competing platforms. We also show that under certain conditions, the mixed-bundling strategy can always bring larger value for both platforms if the intrinsic value of the integrated content (the fractions of the installed base) becomes smaller (higher) relative to the unbundling strategy. These results offer valuable implications for relevant practices.