IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v252y2022ics0925527322001499.html
   My bibliography  Save this article

Joint optimal strategies on service investment and drug pricing for a two-sided online pharmaceutical platform

Author

Listed:
  • Li, Jianbin
  • Wang, Yingying
  • Liu, Zhixin
  • Cai, Xueyuan
  • Xie, Wen

Abstract

We study a monopoly pharmaceutical platform that acts as a two-sided market provider and an e-tailer simultaneously. The platform, on which physicians participate after paying an entrance fee, links physicians and patients through the diagnosis service provided by physicians. Patients can also buy prescription drugs sold by the platform. The platform conducts service investment to attract patients and maximizes its profit by setting an appropriate entrance fee and drug price. We deal with the optimization problem under different conditions, which may be either convex or non-convex. We find that, in general, the platform can achieve its maximized profit when it reduces drug prices to stimulate more patients to buy drugs after being diagnosed. Besides, service investment plays different roles in attracting patients as the disease severity varies. When the disease is less severe, the improvement of service investment mainly increases the number of patients who choose to be diagnosed on the platform. However, when the disease is severer, a more significant service investment can induce patients to purchase drugs. Furthermore, it is more beneficial for the platform to charge physicians for an entry fee rather than sharing the drug revenue with them.

Suggested Citation

  • Li, Jianbin & Wang, Yingying & Liu, Zhixin & Cai, Xueyuan & Xie, Wen, 2022. "Joint optimal strategies on service investment and drug pricing for a two-sided online pharmaceutical platform," International Journal of Production Economics, Elsevier, vol. 252(C).
    • Handle: RePEc:eee:proeco:v:252:y:2022:i:c:s0925527322001499
    DOI: 10.1016/j.ijpe.2022.108556
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527322001499
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2022.108556?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Guowei Dou & Ping He & Xiaoyan Xu, 2016. "One-side value-added service investment and pricing strategies for a two-sided platform," International Journal of Production Research, Taylor & Francis Journals, vol. 54(13), pages 3808-3821, July.
    2. Geoffrey G. Parker & Marshall W. Van Alstyne, 2005. "Two-Sided Network Effects: A Theory of Information Product Design," Management Science, INFORMS, vol. 51(10), pages 1494-1504, October.
    3. Goolsbee, Austan & Klenow, Peter J, 2002. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 317-343, October.
    4. Yumei Luo & Yuwei Li & Qiongwei Ye, 2022. "Impacts of Online Additional Reviews on the Sales Volume of Cross-Border Pharmaceutical E-Commerce Platforms," Journal of Global Information Technology Management, Taylor & Francis Journals, vol. 25(1), pages 83-101, January.
    5. Vibhanshu Abhishek & Kinshuk Jerath & Z. John Zhang, 2016. "Agency Selling or Reselling? Channel Structures in Electronic Retailing," Management Science, INFORMS, vol. 62(8), pages 2259-2280, August.
    6. Burcu Tan & Edward G. Anderson, Jr. & Geoffrey G. Parker, 2020. "Platform Pricing and Investment to Drive Third-Party Value Creation in Two-Sided Networks," Information Systems Research, INFORMS, vol. 31(1), pages 217-239, March.
    7. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
    8. Federico Etro, 2021. "Product selection in online marketplaces," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(3), pages 614-637, August.
    9. S. J. Liebowitz & Stephen E. Margolis, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-150, Spring.
    10. Hui Li & Qiaowei Shen & Yakov Bart, 2021. "Dynamic Resource Allocation on Multi-Category Two-Sided Platforms," Management Science, INFORMS, vol. 67(2), pages 984-1003, February.
    11. Shu He & Jing Peng & Jianbin Li & Liping Xu, 2020. "Impact of Platform Owner’s Entry on Third-Party Stores," Information Systems Research, INFORMS, vol. 31(4), pages 1467-1484, December.
    12. Andrei Hagiu & Daniel Spulber, 2013. "First-Party Content and Coordination in Two-Sided Markets," Management Science, INFORMS, vol. 59(4), pages 933-949, April.
    13. Penghu Wang & Rui Zhang & Bingyong Tang & Min Yuan, 2015. "Pricing Model and Influential Factors Analysis of Drug Trade Service Platform," Springer Books, in: Runtong Zhang & Zhenji Zhang & Kecheng Liu & Juliang Zhang (ed.), Liss 2013, pages 221-226, Springer.
    14. Liu, Weihua & Yan, Xiaoyu & Wei, Wanying & Xie, Dong, 2019. "Pricing decisions for service platform with provider’s threshold participating quantity, value-added service and matching ability," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 410-432.
    15. Baojun Jiang & Kinshuk Jerath & Kannan Srinivasan, 2011. "Firm Strategies in the "Mid Tail" of Platform-Based Retailing," Marketing Science, INFORMS, vol. 30(5), pages 757-775, September.
    16. Edward G. Anderson & Geoffrey G. Parker & Burcu Tan, 2014. "Platform Performance Investment in the Presence of Network Externalities," Information Systems Research, INFORMS, vol. 25(1), pages 152-172, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christian Stummer & Dennis Kundisch & Reinhold Decker, 2018. "Platform Launch Strategies," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 60(2), pages 167-173, April.
    2. Tang, Hua & Chen, Jing & Ai, Xingzheng & Li, Xiaojing & He, Haojia, 2023. "First-party content decision under competitive hardware/software platforms: Free vs. charge," European Journal of Operational Research, Elsevier, vol. 311(3), pages 1068-1083.
    3. Jin Li & Gary Pisano & Yejia Xu & Feng Zhu, 2023. "Marketplace Scalability and Strategic Use of Platform Investment," Management Science, INFORMS, vol. 69(7), pages 3958-3975, July.
    4. Sui, Ronghua & Zhang, Xumei & Dan, Bin & Zhang, Haiyue & Liu, Yi, 2023. "Bilateral value-added service investment in platform competition with cross-side network effects under multihoming," European Journal of Operational Research, Elsevier, vol. 304(3), pages 952-963.
    5. Xiaoxi Zhu & Changhui Yang & Kai Liu & Rui Zhang & Qingquan Jiang, 2022. "Cooperation and decision making in a two-sided market motivated by the externality of a third-party social media platform," Annals of Operations Research, Springer, vol. 316(1), pages 117-142, September.
    6. Yifan Dou & D. J. Wu, 2021. "Platform Competition Under Network Effects: Piggybacking and Optimal Subsidization," Information Systems Research, INFORMS, vol. 32(3), pages 820-835, September.
    7. Jens Foerderer & Thomas Kude & Sunil Mithas & Armin Heinzl, 2018. "Does Platform Owner’s Entry Crowd Out Innovation? Evidence from Google Photos," Information Systems Research, INFORMS, vol. 29(2), pages 444-460, June.
    8. Georgios Petropoulos & Bertin Martens & Geoffrey Parker & Marshall Van Alstyne, 2023. "Platform Competition and Information Sharing," CESifo Working Paper Series 10663, CESifo.
    9. Jullien, Bruno & Pavan, Alessandro & Rysman, Marc, 2021. "Two-sided Markets, Pricing, and Network Effects," TSE Working Papers 21-1238, Toulouse School of Economics (TSE).
    10. Xing Wan & Javier Cenamor & Geoffrey Parker & Marshall Van Alstyne, 2017. "Unraveling Platform Strategies: A Review from an Organizational Ambidexterity Perspective," Sustainability, MDPI, vol. 9(5), pages 1-18, May.
    11. Bender, Mark & Gal-Or, Esther & Geylani, Tansev, 2021. "Attracting artists to music streaming platforms," European Journal of Operational Research, Elsevier, vol. 290(3), pages 1083-1097.
    12. Gang Liu & Fengyue An, 2021. "Video Platforms’ Value-Added Service Investments and Pricing Strategies for Advertisers," Sustainability, MDPI, vol. 13(24), pages 1-24, December.
    13. Martin Peitz, 2023. "Governance and Regulation of Platforms," CRC TR 224 Discussion Paper Series crctr224_2023_480, University of Bonn and University of Mannheim, Germany.
    14. Xie, Jiaping & Zhu, Weijun & Wei, Lihong & Liang, Ling, 2021. "Platform competition with partial multi-homing: When both same-side and cross-side network effects exist," International Journal of Production Economics, Elsevier, vol. 233(C).
    15. Siddhartha Sharma & Amit Mehra, 2021. "Entry of Platforms into Complementary Hardware Access Product Markets," Marketing Science, INFORMS, vol. 40(2), pages 325-343, March.
    16. Zhu, Weijun & Xie, Jiaping & Xia, Yu & Wei, Lihong & Liang, Ling, 2023. "Getting more third-party participants on board: Optimal pricing and investment decisions in competitive platform ecosystems," European Journal of Operational Research, Elsevier, vol. 307(1), pages 177-192.
    17. Andrei Hagiu & Julian Wright, 2015. "Marketplace or Reseller?," Management Science, INFORMS, vol. 61(1), pages 184-203, January.
    18. Esther Gal-Or & Ronen Gal-Or & Nabita Penmetsa, 2018. "The Role of User Privacy Concerns in Shaping Competition Among Platforms," Information Systems Research, INFORMS, vol. 29(3), pages 698-722, September.
    19. Oksana Loginova, 2019. "Price Competition Online: Platforms vs. Branded Websites," Working Papers 1906, Department of Economics, University of Missouri.
    20. Burcu Tan & Edward G. Anderson, Jr. & Geoffrey G. Parker, 2020. "Platform Pricing and Investment to Drive Third-Party Value Creation in Two-Sided Networks," Information Systems Research, INFORMS, vol. 31(1), pages 217-239, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:252:y:2022:i:c:s0925527322001499. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.