Platform investment strategy on reducing transaction costs

Abstract

Purpose

This paper aims to investigate the investment strategy of a two-sided platform on reducing transaction costs of two user sides and to study the pricing problem of the platform.

Design/methodology/approach

Mathematical derivation is used to compute the optimal decisions of a two-sided platform on pricing and investment. Numerical analysis is used to illustrate the findings.

Findings

It is found that the demand of one user side decreases in the maximal transaction costs reduction to this side but increases in the maximal transaction costs reduction to the other side. It is also found that a platform should never choose the investment in such a way that the maximal transaction costs reductions of two user sides are the same.

Research limitations/implications

Several limitations exist in this paper, most of which exist due to the assumptions. These limitations could be good research directions in the future. For example, only one platform’s decision is considered, and platforms’ competition is not taken into account. Considering other platforms’ competition, the decisions of the users and the platform would be different.

Originality/value

From the transaction costs perspective, this paper finds that a platform should never choose the investment in such a way that the maximal transaction costs reductions of two user sides are the same. This conclusion has not been found in previous literature.

Citation

Zhang, S. and He, P. (2017), "Platform investment strategy on reducing transaction costs", Kybernetes, Vol. 46 No. 5, pp. 893-911. https://doi.org/10.1108/K-03-2016-0049