Quality Differentiation and Optimal Pricing Strategy in Multi-sided Markets

34 Pages Posted: 5 Aug 2020

See all articles by Soo Jin Kim

Soo Jin Kim

ShanghaiTech University - School of Entrepreneurship and Management

Pallavi Pal

Michigan State University

Date Written: August 5, 2020

Abstract

This paper analyzes the generalized quality differentiation model in multi-sided markets with positive externalities, which leads to new insights into the optimal pricing structure of the firm. We find that quality differentiation for users on one side leads to a decrease in the price charged to users on the other side due to cross-subsidization, thereby affecting the pricing structure of multi-sided firms. In addition, quality differentiation affects the strategic relationships among the choice variables for the platform, so that the platform strategically uses quality differentiation to raise its profits.

Keywords: Multi-sided Market; Quality Differentiation; Platform Business Strategies

JEL Classification: D43; L11; L42

Suggested Citation

Kim, Soo Jin and Pal, Pallavi, Quality Differentiation and Optimal Pricing Strategy in Multi-sided Markets (August 5, 2020). ShanghaiTech SEM Working Paper No. 2020-009, Available at SSRN: https://ssrn.com/abstract=3667460 or http://dx.doi.org/10.2139/ssrn.3667460

Soo Jin Kim (Contact Author)

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

Pallavi Pal

Michigan State University ( email )

East Lansing, MI 48824
United States

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