Two-sided markets: the role of technological uncertainty

Baran Siyahhan (), Hamed Ghoddusi and Alexander Rodivilov
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Baran Siyahhan: LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris], IMT-BS - DEFI - Département Droit, Économie et Finances - TEM - Télécom Ecole de Management - IMT - Institut Mines-Télécom [Paris] - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris]
Hamed Ghoddusi: Stevens Institute of Technology [Hoboken]

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Abstract: This paper examines the effect of technological uncertainty on the optimal pricing and investment decisions in a two-sided market. A platform offers a basic good and a developer offers a complementary good. The performance of the complementary good is stochastic and is endogenously determined by the pricing policy the platform adopts. Heterogeneous consumers join the platform either before uncertainty is resolved or after. In the former case, consumers obtain the basic good and an option to benefit from the complementary good in the future. The platform trades off building an earlier mass of consumer base and extracting profits from late adopters. Consumers are divided into three groups: early adopters, late adopters, and those who never join the platform. A platform's pricing policy depends on the value of the complementary good and the cost of its development. If the cost is small, a price skimming policy is optimal. When the cost is higher, price skimming remains optimal if the value of the complementary good is either small or relatively high. For intermediate values, the platform adopts a price penetration policy. We discuss some examples from the empirical literature in light of the model.

Keywords: Dynamic Pricing; Investment under Uncertainty; Real Options; Two-Sided Markets (search for similar items in EconPapers)
Date: 2020-08-17
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Published in ESWC 2020 : Econometric Society World Congress, Econometric Society and Bocconi University, Aug 2020, Milan, Italy

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Related works:
Working Paper: Two-sided markets: the role of technological uncertainty (2020)
Working Paper: Two-sided markets: the role of technological uncertainty (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03117897

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