Online Healthcare Platform Evolution: The Interplay of Bargaining and Network Effects

Abstract

Healthcare constitutes a significant and growing proportion of most countries' gross domestic product (GDP). Online healthcare platforms, due to their scalability, have emerged as a powerful model to increase efficiency and accessibility. The speed of scaling depends on network effects, especially cross-network effects, among healthcare providers and consumers. These platforms typically use bargaining processes to induce healthcare providers to join, thereby leveraging their larger cross-network effects. We develop a novel modeling approach that combines the estimation of heterogeneous direct and cross-network effects and bargaining outcomes to examine the evolution of such platforms. We apply our model to data from a prominent Chinese online healthcare platform that connects hospitals and consumers for preventive health checkups. Our results indicate that hospitals exhibiting higher network effects extract more economic value from the platform. Conversely, hospitals with lower network effects gain less economic value. Furthermore, we pinpoint the sources of bargaining power for both hospitals and the platform. Through a series of policy simulations, we provide insights for the platform on how to manage its resource allocation across hospitals and markets to achieve its goals, whether growth or profitability. Additionally, we calculate that consumers on the platform also benefit monetarily, with savings equivalent to two hours of minimum wage earnings.

Keywords: Online Platforms, Bargaining, Network Effects, Healthcare