1. University of Texas at Arlington
Platform Strategy Symposium 2017
Discussion: Dynamic Platform Competition: Optimal Pricing and Piggybacking under Network Effects
Yifan Dou and D. J. Wu
by Jennifer Jie Zhang
University of Texas at Arlington

2. Two-sided Platform

3. Summary of the Study
The development of a successfully platform businesses
the chicken-and-egg problem
Piggybacking strategy
The model considers
(1) Dynamic analysis of the network evolution
How the platform owner strategically prices the two sides while building the platform over time?
(2) Competitive platforms
How to differentiate with the competing platform
(3) Many extensions
Three periods model
Asymmetric discounting factors
changing prices over time to strategically build the two-sided market in order to optimize the total profits

4. Dynamic analysis of the network evolution
Settings:
Multi-homing providers
Single-homing customers
Symmetric duopoly
Pricing: compared with a single-period model,
on the customer side: both platforms lower period-1 price, and increase period-2 price
On the provider side: period-1 price remains unchanged, period 2 price change δ(α-β)/8.
Comments:
Equation (2): there is no within-network externality on the provider side (qdki is independent of other providers’ number or pricing)
More results: how’s the growth of the market sizes on both sides of the platform over time?
How do the assumptions affect the subsidizing strategy?

5. Piggybacking strategy
Findings under the dynamic asymmetric duopoly model:
Piggybacking may cause price wars between the two platforms or benefit both depending on the relative values of α and β
Comments:
Piggybacking strategy normally requires a contractual or affiliation relationship -- related to the cost structure
How does competition affect the piggybacking strategy – compared with the monopolist case

6. Summary of Comments
From the baseline (single-period monopoly) model, add
the competition between (asymmetric) platforms
Dynamic effect (2-period, 3-period)
Nonprice controls: piggybacking
Show how the dynamic pricing, platform competition, nonprice controls affect the market size, pricing, profits, interactions between the three players in the market