Pricing Strategies of Unbundling and Mixed-Bundling in a Two-Sided Market Under Stochastic Demand

Abstract

We investigate the pricing strategies of unbundling and mixed-bundling for a firm that produces both a product and a compatible integrated content, respectively. The firm can be viewed as a two-sided transaction platform between sellers and customers, and decides whether to sell the product and the integrated content separately or jointly. Sellers develop independent content and are charged a per-unit royalty rate for each transaction on the platform, and customers are required to pay the prices for the product and the contents. With the consideration of stochastic demand, we study the impacts of cross-side network effect on the pricing strategies of unbundling and mixed-bundling, respectively. Moreover, we compare the impact of unbundling and mixed-bundling on the pricing strategy of the platform. Compared with no cross-side network effect, we show that the firm (with unbundling and mixed-bundling) need not subsidize customers and sellers in the presence of the effect under certain conditions, indicating that it can extract the most surplus from both sides to maximize the profit. This stands in sharp contrast to the finding of the literature on two-sided markets that the platform should subsidize one side of the market in order to make profit from the other side. Moreover, our result suggests that mixed-bundling can help the firm make more profit with fewer products by subsidizing one side of the market compared with the unbundling.