5 - Platform Pricing

Summary

In this chapter, we examine how a platform, which has passed the launch phase, prices its services. In Section 5.1, we provide a general introduction to platform pricing by describing the different types of prices that a platform might choose, by going through a simple numerical example, and by discussing why the platform’s decisions may diverge from what would be optimal from a social point of view. We then address, in Section 5.2, the platform pricing problem in a general way to understand how the platform optimally chooses prices so as to manage network effects, and why this often leads to pricing structures such that different groups of users end up paying quite different prices; we also address the question whether platforms should charge users only for accessing the platform or also for the transactions they conduct on the platform. In Section 5.3, we extend the analysis by considering one-sided pricing, the presence of within-group network effects, and differential pricing. Finally, in Section 5.4, we examine the link between pricing and the way users form their expectations regarding the participation of other users.