Advertising strategies for innovation capability sharing: A two-sided market analysis

In addition to pricing strategies, user-targeted advertising represents a key approach for innovation capability sharing platforms to enhance profitability. Incorporating cross-network externalities, this paper examines platform advertising investment and pricing decisions under both monopoly and competitive scenarios. Our findings indicate that platforms always charge users on the side with stronger cross-network externalities, while the decision regarding whether to charge or subsidize users on the side with weaker externalities depends on advertising sensitivity and platform differentiation. Social welfare is positively affected by cross-network externalities but negatively influenced by advertising costs. In scenarios with multi-homing suppliers and single-homing purchasers, we characterize the equilibrium advertising strategies for competing platforms, which are determined by the advertising cost coefficients for both platform sides. These strategies may lead to a prisoner's dilemma; we therefore propose a penalty mechanism to resolve it. Conversely, under single-homing suppliers and multi-homing purchasers, multiple Nash equilibria exist for advertising strategies, though Pareto optimality determines the equilibrium outcome. Finally, we find that platforms are more likely to encourage exclusive supplier contracts when competition is less intense, but these contracts reduce profits as competition intensifies.