Study on Inter-temporal Pricing to Suppress Negative Network Externalities of Merchants in Two-Sided Markets

Abstract

The problem of dishonest transactions in two-sided markets is increasingly prominent, and its governance mechanism needs to be improved. Pricing strategy is an effective means of platform governance, which can restrain the negative network externalities caused by dishonest transactions. By using the inter-temporal analysis method, this paper analyzes the influence of network externalities in different periods on platform pricing and regulatory costs. The research shows that: from the perspective of platform profit maximization, (1) The greater the positive network externalities of merchants, the lower the platform charges merchants; (2) The greater the negative network externalities caused by dishonest transactions, the higher the platform charges merchants; (3) The greater the network externalities of consumers to merchants, the higher the platform charges merchants. Finally, the influence of cross network externality on platform pricing, platform supervision cost, number of both sides of the platform and platform profit is analyzed by simulation. This provides suggestions for the platform to control merchants' dishonest transaction behavior through pricing.