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Title:
Pricing Strategies of Electronic B2B Marketplaces with Two-Sided Network
Abstract:
With interest in business to business (B2B) electronic commerce growing rapidly, the elctronic B2B marketplace, which is at the center of B2B electronic commerce, has become an important issue in the debate about electronic commerce. In order to be successful, electronic B2B marketplaces need to acquire a large-enough customer base. How should the intermediary charge suppliers and buyers to maximize profits from such a marketplace?
We analyze a monopolistic B2B marketplace owned by an independent intermediary. The marketplace exhibits two-sided network externalities where the value of the marketplace to buyers is dependent on the number of suppliers, and value to suppliers is dependent on the number of buyers and suppliers. When these two-sided network externalities exist, we find that the optimal price and market share levels for buyers are dependent on the switching cost and the strength of the network effect of both types: buyers and suppliers. The same is true for the optimal price and market share of suppliers. In other words, the parameters that define the buyers also affect the optimal price and market share level of the suppliers and vice versa. Our results also point to some counterintuitive optimal pricing strategies that depend on the nature of the industry served by the marketplace.
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