Platform Pricing in the Presence of Cross-platform Network Effects

Abstract

As platform businesses are booming, different platforms are connected through multi-homing users. Thus, cross-platform network effects arise and have become a strategic concern among business practitioners. However, extant literature has largely ignored cross-platform network effects. We use a stylized model to examine the network effects through the feedback loop and the impact of cross-platform network effects on platform pricing through two levels of impact: the number of multi-homing users and service complementarity. We find that platforms charge less on both sides in the presence of cross-platform network effects when they are separately owned. Moreover, platforms charge even lower prices on both sides when services are complementary. An important caveat is that platforms are willing to sacrifice prices to attract more users when cross-platform network effects are present. We also extend our model to analyze the impact of cross-platform network effects on platform pricing when two platforms are integrated.