Service Investment and Pricing Strategies in E-Commerce Platforms With Seller Competition

Introduction

Recent technological innovations have led to the emergence of online platforms that create two-sided platforms (e.g., eBay, Alibaba, etc.). The typical two-sided platforms serve to facilitate trade and generate revenue by charging from the participants. Two-sided platforms gain competitive advantage and platform performance by adopting better management practices such as various kinds of pricing strategies to maximize profits (e.g., Singh et al., 2014). The pricing strategy is important because it will directly affect the number of participants on the two-sided platforms. For example, eBay.com charges a listing fee plus a per-transaction fee from each seller, while Tmall.com charges a fixed entry fee plus a per-transaction fee.

The growing tendencies in the forecasts of e-commerce services indicate that e-commerce platforms pay attention to the relationship between consumer satisfaction and platform service levels (e.g., Gajewska et al., 2020). Only the consumers are satisfied can two-sided platforms attract more participants and obtain higher profit. Therefore, the platform adopts various service strategies to improve its service level, such as providing value-added services (e.g., Dou et al., 2016). Specifically, the advertising service for online sellers provided by some e-commerce platform improves the transactions effectively; the online application store provides a new payment method to make transactions more convenient, thereby increasing the developer’s potential income; the payment platform of credit card organization provides data mining service, which enables sellers to take better marketing measures. Besides pricing and investment strategies, two-sided platforms also try to gain advantages through participant classification. Such as, Taobao.com, the largest B2C e-commerce platform in China, classifies the sellers into two types (individual vs. professional). Payment system classifies the consumers into two types (ordinary vs. VIP) and Video websites classifies the audiences into two types (general vs. paying).

With the participants’ classification of the two-side platform, the different types of the participants compete in the platform. The success of the platform greatly depends on the balanced investment and pricing for the different types of participants(e.g., Dou et al., 2018). For example, Amazon.com classifies the sellers into individual and professional. The professional sellers are endowed with high performance and the individual sellers are endowed with low performance by the platform (e.g., Wu and Gereffi, 2018). That means the buyers think the reputation of the professional sellers is better than individual sellers. The products’ price of the professional sellers is higher than that of the individual sellers. In a certain period of time, the two types of sellers compete for the buyers in the platform. The platform charges the sellers with high performance subscription fee and transaction fee and provides them value-added service or not. The platform charges the sellers with low performance transaction fee only and provides basic service. To make profit optimal, the platform should balance on the two types of the sellers of the charge fee and the level of value-added service, in the paper below the authors call it investment.