Pricing decisions for service platform with provider’s threshold participating quantity, value-added service and matching ability

Abstract

Affected by the online supply-demand matching, traditional pricing decisions cannot be applied to recent ‘online-to-offline’ (O2O) platforms, which should consider more about the features of the demander side, provider side and platform matching. Models with a profit-maximizing platform that considers the pricing decision effects of the provider’s threshold participating quantity, value-added service (VAS) and matching ability are developed in this study. Specifically, the main conclusions are divided into two parts: low-demand state and high-demand state. In the low-demand state, we show that the threshold participating quantity significantly affects pricing decisions when the basic demand is relatively low. There are two different critical values that make the pricing decisions into three cases. Second, regardless of the platform’s capital and the basic demand, the VAS always benefits the platform. Third, when the basic demand is relatively low and the threshold participating quantity is relatively high, the platform will not benefit from a higher matching ability, which is counter-intuitive. In the high-demand state, we show that the threshold participating quantity will not affect the pricing decisions. Second, developing the VAS still contributes to the improvement of platform’s profit. Third, different from the low-demand state, the platform’s profit always increases with the matching ability.