Channel Management for Digital Products in the Two-sided Market with Network Externality Effects

Wei Li, Yan-Peng He and Shu-Gang Ma

Discrete Dynamics in Nature and Society, 2023, vol. 2023, 1-10

Abstract:

Channel selection is a critical trade-off for digital products firms whose products are characterized by network externality. This work develops the models of consumers’ utility impacted by the network externality for two channel strategies of the digital product firms in the two-sided market: direct channel strategy and platform channel strategy. Deriving from the consumers’ utility, the optimization models of the two channel strategies are presented. The optimization models are solved through the Lagrangian method, and the comparative statics analysis is conducted to investigate the effect of network externality on optimality. Mathematical results show that if the intensity of network externality in the online platform surpasses that in the direct channel, the platform channel strategy dominates the other channel strategy; otherwise, the direct channel strategy is the firms’ optimal decision. In addition, the two channels share the equal optimal price, and the firms’ profit (and demand) would be positively impacted by the network effect and the products’ features but negatively impacted by the consumers’ learning cost. This work provides decision support for the digital product firms on channel selection in the context of the two-sided market.

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://downloads.hindawi.com/journals/DDNS/2023/3461050.pdf (application/pdf)
http://downloads.hindawi.com/journals/DDNS/2023/3461050.xml (text/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hin:jnddns:3461050

DOI: 10.1155/2023/3461050

Access Statistics for this article

More articles in Discrete Dynamics in Nature and Society from Hindawi
Bibliographic data for series maintained by Mohamed Abdelhakeem ().