Selling strategies selection of service goods in two-sided market

Abstract

Two-sided market is a marketplace where participants on demand- and supply-side transact with each other through a platform to create economic values. How to select selling strategies to improve the matching efficiency of service goods has become the key to service providers. In this paper, we compare post pricing and k-double auction mechanism, and explore the role of upgrading and opaque selling mechanism in disposing of leftovers. How to manage the pricing, selling strategies selection and resource allocation problems of above mechanisms in two-sided market is the focus of this paper. Firstly, we compare dynamic pricing with k-double auction in the presence of strategic providers. Under dynamic pricing mechanism, the platform sets prices, customers and providers are matched randomly. Under k-double auction mechanism, the platform announces a matching policy, participants on two sides are matched based on a bidding priority. To capture providers' strategic behaviour, we construct a two-period model in which a sub-game Nash equilibrium is characterized. Results indicate that the lower the demand-supply intensity and the higher the bidding power, the more likely that the platform chooses post pricing. Because the transaction price is higher in post pricing than in k-double auction, customers are better off in k-double auction than in dynamic pricing. Both providers and the whole society are always better off under k-double auction except Buyer's Bid Double Auction. By considering static post pricing, we show that the platform with more pricing flexibility prefers post pricing to k-double auction. And by considering one-period model, we find that providers' strategic behaviour motivates the platform to adopt k-double auction. Secondly, we examine the relationship between two typical probabilistic mechanisms, upgrading and opaque selling, against a backdrop of vertical differentiated markets. In upgrading mechanism, high-quality capacities are offered as upgrades with a much lower price to customers who have purchased low-quality capacity. In opaque selling mechanism, high- and low-quality capacities are offered as an opaque mix with the same selling price. To capture different roles of two probabilistic mechanisms played in the seller's salvage value generation process, we construct a two-stage model, including a regular and salvage stage, to integrate these two mechanisms into a unified framework. Result shows even though the price discrimination and demand segmentation effect make upgrading dominate opaque selling, the two mechanisms are either complementary or substitutable. That is, the two probabilistic mechanisms are substitutes when high-quality capacity is extremely small when no upgrading platform participates, are either complementary or substitutable when high-quality capacity is in the medium level, or are substitutes when upgrading comes first or complements when opaque selling comes first if high-quality capacity is rather large. This paper provides managerial insights for service providers and platforms regarding operations decisions, and lays a foundation for the follow-up research on mechanism design in two-sided market.