Pricing Problem of Social Network Platforms with Co-Existence of Positive and Negative Network Effects

Abstract

Abstract:

Abstract： This paper studied the pricing problem of social network platforms with the co-existence of positive network effects of resources and negative network effects of advertisements. A duopoly competition model was built and the Nash equilibrium of the game was obtained. In equilibrium, the variation of quantities of resources, advertisements, and platform profits were then analyzed. It is found out that the ratio of resources to advertisement has an important impact on platforms. The platforms offer network users services free of charge, whereas the actual costs are shifted onto advertisers through advertising fees. As the ratio of resources to advertisement increases, the variation of quantities of resources and advertisement are not monotonous, instead there exists a turning point. In order to maximize platform profits, the optimal ratio of resources to advertisement lies at the boundary of feasible region. The results of this paper help to reveal how platforms balance resources and advertisements.

Key words: social network platform, two-sided market, positive network effect, negative network effect

CLC Number:

F 270

WU Chunxu，HUANG Yiluo，XU Chuanyong. Pricing Problem of Social Network Platforms with Co-Existence of Positive and Negative Network Effects[J]. Journal of Shanghai Jiaotong University, 2015, 49(04): 519-523.

References

［1］Evans D S. Some empirical aspects of multisided platform industries ［J］. Review of Network Economics, 2003, 2(3): 191209.

［2］Katz M L, Shapiro C. Network externalities, competition, and compatibility ［J］. The American Economic Review, 1985, 75(3): 424440.

［3］Farrell J, Saloner G. Standardization, compatibility, and innovation ［J］. The RAND Journal of Economics, 1985，16(1): 7083.

［4］曹俊浩, 陈宏民, 石彼得. 基于双边市场理论的B2B垄断平台自网络外部性分类及其强度研究［J］. 上海交通大学学报, 2010，44(12): 16611664.

CAO Junhao, CHEN Hongmin, SHI Bide. On classification and strength of self network externality in B2B monopoly platform based on twosided market ［J］. Journal of Shanghai Jiaotong University, 2010，44(12): 16611664.

［5］Rochet J C, Tirole J. Platform competition in twosided markets ［J］. Journal of the European Economic Association, 2003, 1(4): 9901029.

［6］Anderson S P, Coate S. Market provision of broadcasting: A welfare analysis ［J］. The Review of Economic Studies, 2005, 72(4): 947972.

［7］Choi J P. Broadcast competition and advertising with free entry: Subscription vs. freetoair ［J］. Information Economics and Policy, 2006, 18(2): 181196.

［8］Peitz M, Valletti T M. Content and advertising in the media: PayTV versus freetoAir ［J］. International Journal of Industrial Organisation, 2008, 26(4): 949965.

［9］程贵孙, 陈宏民. 基于双边市场的传媒产业政府规制［J］. 上海交通大学学报, 2008, 42(9): 14791482.

CHENG Guisun,CHEN Hongmin. Study on the regulation of media industry based on twosided markets ［J］. Journal of Shanghai Jiaotong University, 2008,42(9):14791482.

［10］朱振中, 吕廷杰. 具有负的双边网络外部性的媒体市场竞争研究［J］. 管理科学学报, 2007, 10(6): 1322.

ZHU Zhengzhong, Lv Tingjie. Study on media competition based on twosided market theory［J］. Journal of Management Sciences in China, 2007, 10(6):1323.

［11］程贵孙,陈宏民,孙武军. 双边市场下电视传媒平台兼并的福利效应分析［J］. 管理科学学报, 2009, 12(2): 918.

CHENG Guisun,CHEN Hongmin,SUN Wujun. Analysis of the welfare effects of television media platform merger in twosided markets ［J］. Journal of Management Sciences in China, 2009,12(2):918.

［12］程贵孙,李银秀. 具有负网络外部性的媒体平台双边定价策略［J］. 山西财经大学学报, 2009,31(4):713.

CHENG Guisun, LI Yinxiu. On the twosided price strategies of the media platform with the negative network externalities ［J］. Journal of Shanxi Finance and Economics University, 2009,31(4):713.

［13］程贵孙. 具有负网络外部性的媒体平台竞争与福利研究［J］. 管理科学学报,2010, 13(10): 8996.

CHENG Guisun. On the competition and welfare of media platform with the negative network externality ［J］. Journal of Management Sciences in China, 2010,13(10):8996.

［14］Caillaud B, Jullien B. Chicken & egg: Competition among intermediation service providers ［J］. The RAND Journal of Economics, 2003，34(2): 309328.