Mathematical Optimization on Hybrid Channel Pricing Digital Products in Two‐Sided Market with Network Effect

Wei Li, Yan-peng He and Shu-gang Ma

Journal of Applied Mathematics, 2023, vol. 2023, issue 1

Abstract: In the two‐sided market where the third‐party platforms connect the providers and consumers, the online platforms become the significant distribution channel of digital products; therefore, the digital product firms face the hybrid channel pricing problem in the two‐sided market in which the products are launched through the platform channel and the existing direct channel. Because the network externality effect is the significant economic characteristic of digital products and services, the current work presents the models of consumers’ utility obtained by adopting digital products from the direct and platform channels, and the utility models use the network effect in the direct and platform channels as the parameters. The optimization model on pricing is derived from the utility models and solved mathematically. The closed‐form solutions show that the price in the direct channel is supposed to be lower than that in the platform channel, while the prices of digital products would be affected by the network effect only when the products are distributed through the direct channel. The comparative statics analysis on the network effect illustrates that the network effect in the direct channel and the platform channel would, respectively, have the positive and negative impact on the products’ prices and the firms’ profit. The current work explores the hybrid channel pricing problem and provides insights for the digital product firms on the optimal pricing decision in the context of the emerging platform economy.

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1155/2023/4456931

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:wly:jnljam:v:2023:y:2023:i:1:n:4456931

Access Statistics for this article

More articles in Journal of Applied Mathematics from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().