Dynamic Innovation in a Two-Sided Platform

We are interested in a two-sided platform, in which dynamic innovation plays a role in stimulating consumer demand that also drives firms' incentive to innovate. By explicitly modeling the price competition within the two-sided market, we study ways consumers' platform fee interacts with f...

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Main Authors: LIN, Mei, LI, Shaojin, WHINSTON, Andrew
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Language:English
Published: Institutional Knowledge at Singapore Management University 2011
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Online Access:https://ink.library.smu.edu.sg/sis_research/1719
http://doi.ieeecomputersociety.org/10.1109/HICSS.2011.173
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spelling sg-smu-ink.sis_research-27182014-10-20T06:36:45Z Dynamic Innovation in a Two-Sided Platform LIN, Mei LI, Shaojin WHINSTON, Andrew We are interested in a two-sided platform, in which dynamic innovation plays a role in stimulating consumer demand that also drives firms' incentive to innovate. By explicitly modeling the price competition within the two-sided market, we study ways consumers' platform fee interacts with firms' pricing strategies on the platform. Our framework also characterizes a dynamic R&D race and solves the stationary Markov equilibrium using computation methods. We find that by charging consumers a fee, the platform is not necessarily better off, because firms may subsidize this cost by lowering their prices in the market, which leads to lower transaction revenues and innovation rate. Platform's revenues may also suffer if it shares firms' transaction revenues. Surprisingly, despite the platform fee, consumer welfare improves as a result of lower prices. However, these effects are not monotonic, and shifts in the opposite direction occur when firms switch to different pricing strategies, because consumers' platform fee also mitigates price competition between low- and high-quality firms. 2011-01-01T08:00:00Z text https://ink.library.smu.edu.sg/sis_research/1719 info:doi/10.1109/HICSS.2011.173 http://doi.ieeecomputersociety.org/10.1109/HICSS.2011.173 Research Collection School Of Computing and Information Systems eng Institutional Knowledge at Singapore Management University Markov equilibrium consumer welfare dynamic innovation firm pricing strategy incentive modeling platform fee price competition two-sided market Computer Sciences E-Commerce
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Markov equilibrium
consumer welfare
dynamic innovation
firm pricing strategy
incentive modeling
platform fee
price competition
two-sided market
Computer Sciences
E-Commerce
spellingShingle Markov equilibrium
consumer welfare
dynamic innovation
firm pricing strategy
incentive modeling
platform fee
price competition
two-sided market
Computer Sciences
E-Commerce
LIN, Mei
LI, Shaojin
WHINSTON, Andrew
Dynamic Innovation in a Two-Sided Platform
description We are interested in a two-sided platform, in which dynamic innovation plays a role in stimulating consumer demand that also drives firms' incentive to innovate. By explicitly modeling the price competition within the two-sided market, we study ways consumers' platform fee interacts with firms' pricing strategies on the platform. Our framework also characterizes a dynamic R&D race and solves the stationary Markov equilibrium using computation methods. We find that by charging consumers a fee, the platform is not necessarily better off, because firms may subsidize this cost by lowering their prices in the market, which leads to lower transaction revenues and innovation rate. Platform's revenues may also suffer if it shares firms' transaction revenues. Surprisingly, despite the platform fee, consumer welfare improves as a result of lower prices. However, these effects are not monotonic, and shifts in the opposite direction occur when firms switch to different pricing strategies, because consumers' platform fee also mitigates price competition between low- and high-quality firms.
format text
author LIN, Mei
LI, Shaojin
WHINSTON, Andrew
author_facet LIN, Mei
LI, Shaojin
WHINSTON, Andrew
author_sort LIN, Mei
title Dynamic Innovation in a Two-Sided Platform
title_short Dynamic Innovation in a Two-Sided Platform
title_full Dynamic Innovation in a Two-Sided Platform
title_fullStr Dynamic Innovation in a Two-Sided Platform
title_full_unstemmed Dynamic Innovation in a Two-Sided Platform
title_sort dynamic innovation in a two-sided platform
publisher Institutional Knowledge at Singapore Management University
publishDate 2011
url https://ink.library.smu.edu.sg/sis_research/1719
http://doi.ieeecomputersociety.org/10.1109/HICSS.2011.173
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