Service Investment and Pricing Strategies in E-Commerce Platforms With Seller Competition

Abstract

With the development of the two-sided market, many platform enterprises classify their users into different types and cooperate with them with different strategies. The extant literature mainly explores the pricing and investment decisions for the platform, but pays little attention to the classification of sellers when making decisions. This paper investigates the investment of value-added service and pricing strategies for an e-commerce platform with competing sellers. Specifically, this paper considers a two-sided platform that is composed of an e-commerce platform, buyers and sellers. Sellers with high performance requirement and with low performance requirement compete for the buyers in the platform. This paper assumes that each buyer will choose the sellers’ type immediately after entering the platform and buy a unit of product in the platform. Through theoretical analysis the authors show that, the platform will gain more profits by investing in value-added services for type-A sellers and it will obtain the optimal profit when the transaction fee is moderate.