Two-tier price membership mechanism design based on user profiles

Abstract

• The e-commerce platform’s two-tier price membership mechanism design is studied. • We investigate the optimal two-tier price membership mechanism. • Discuss two-tier price membership considering consumer behaviors. • The two-tier price membership mechanism can achieve a triple-win situation. E-commerce platforms have pioneered many innovative business models based on their strong big data capabilities and consumer profile technology. This paper studies the design of the two-tier price membership mechanism in e-commerce platforms, i.e., the price discrimination in membership fees for different consumer groups. We analyze this mechanism considering and not considering certain consumer behaviors, respectively. We surprisingly find that the entry thresholds of the two-tier price mechanism in four different scenarios coincide at the critical point of whether consumers will buy the membership. The entry threshold provided by the platform distinguishes high-value consumers. When not considering the reference price effect, the two-tier price mechanism will degenerate into a uniform-price mechanism. The high membership fee only acts as a reference price for high-value consumers. Finally, we discuss social welfare and show that a triple-win scenario can occur among the platform, members, and merchants when the cross-buying effect is strong enough.