Quality Differentiation and Optimal Pricing Strategy in Multi-sided Markets


ShanghaiTech SEM Working Paper No. 2020-009

 Soo Jin Kim

ShanghaiTech  University

 Pallavi Pal

Michigan State University


This paper analyzes the generalized quality differentiation model in multi-sided markets with positive externalities, which leads to new insights into the optimal pricing structure of the firm. We find that quality differentiation for users on one side leads to a decrease in the price charged to users on the other side due to cross-subsidization, thereby affecting the pricing structure of multi-sided firms. In addition, quality differentiation affects the strategic relationships among the choice variables for the platform, so that the platform strategically uses quality differentiation to raise its profits.

Keywords: Multi-sided Market; Quality Di erentiation; Platform Business Strategies

Date Written: July, 2020

Available at SSRN: https://ssrn.com/abstract=3667460

Download this paper: 【No. 2020-009】Quality Differentiation and Optimal Pricing Strategy in Multi-sided Markets.pdf