Title: A study of pricing strategy in platform business: a multi-agent simulation approach

Authors: Motoki Sasagawa; Tomoko Kajiyama; Noritomo Ouchi

Addresses: Graduate School of Science and Engineering, Aoyama Gakuin University, 5-10-1 Fuchinobe, Chuo-ku, Sagamihara-shi, Kanagawa 252-5258, Japan ' Department of Industrial and Systems Engineering, Aoyama Gakuin University, 5-10-1 Fuchinobe, Chuo-ku, Sagamihara-shi, Kanagawa 252-5258, Japan ' Department of Industrial and Systems Engineering, Aoyama Gakuin University, 5-10-1 Fuchinobe, Chuo-ku, Sagamihara-shi, Kanagawa 252-5258, Japan

Abstract: The platform business has attracted an increasing amount of attention from industry professionals and academics alike. Although a low pricing strategy is effective for increasing the number of users in the platform business, it remains unclear if a low pricing strategy increases profits for platform providers. To address this issue, we employed multi-agent simulation techniques to analyse the influence of pricing strategy on platform provider's profit. First, we constructed a user behavioural model which incorporates both cross-side network effects and same-side network effects. In this model, we treated consumers, suppliers, and advertisers as platform users. Next, the simulations demonstrated that a low pricing strategy generates greater profit than a high pricing strategy when the suppliers' and advertisers' same-side network effects are negative. Taken together, the results of this study suggest that platform providers must choose a pricing strategy on the basis of the impact of same-side network effects.

Keywords: platform business; pricing strategy; multi-agent simulation; cross-side network effects; same-side network effects; user behavioural modelling; multi-agent systems; MAS; agent-based systems.

DOI: 10.1504/IJTMKT.2014.065376

International Journal of Technology Marketing, 2014 Vol.9 No.4, pp.421 - 435

Received: 16 Feb 2013
Accepted: 08 Nov 2013

Published online: 23 Oct 2014 *

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