IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0224369.html
   My bibliography  Save this article

Subsidy strategy of pharmaceutical e-commerce platform based on two-sided market theory

Author

Listed:
  • Chenshuo Li
  • Zhe Huang

Abstract

With the development of economic globalization and information technology, enterprises pay more attention to the sustainable development of their e-commerce. Under this trend, we study the subsidy strategy commonly used by pharmaceutical e-commerce platforms in two-sided market. Based on the two-sided market theory, we set up the two-sided user's utility function and formulate the subsidy strategy as the decision of platform profit optimization. We show that the platform chooses to subsidize consumers only if the net income from consumer is lower than the total revenue of drug retailers and platforms in each transaction; the maximum profit for platform increases with the intensity of the network externality. This study provides theoretical support and decision-making suggestions for the pharmaceutical e-commerce platforms to capture the market share, obtain higher profits and ultimately achieve the sustainable development goal.

Suggested Citation

  • Chenshuo Li & Zhe Huang, 2019. "Subsidy strategy of pharmaceutical e-commerce platform based on two-sided market theory," PLOS ONE, Public Library of Science, vol. 14(10), pages 1-15, October.
    • Handle: RePEc:plo:pone00:0224369
    DOI: 10.1371/journal.pone.0224369
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0224369
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0224369&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0224369?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
    ---><---

    References listed on IDEAS

    as
    1. Fan, Ruguo & Dong, Lili, 2018. "The dynamic analysis and simulation of government subsidy strategies in low-carbon diffusion considering the behavior of heterogeneous agents," Energy Policy, Elsevier, vol. 117(C), pages 252-262.
    2. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    3. Yong Chao & Timothy Derdenger, 2013. "Mixed Bundling in Two-Sided Markets in the Presence of Installed Base Effects," Management Science, INFORMS, vol. 59(8), pages 1904-1926, August.
    4. Zhang, Nan & Levä, Tapio & Hämmäinen, Heikki, 2014. "Value networks and two-sided markets of Internet content delivery," Telecommunications Policy, Elsevier, vol. 38(5), pages 460-472.
    5. Hagiu, Andrei & Hałaburda, Hanna, 2014. "Information and two-sided platform profits," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 25-35.
    6. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    7. Kim, Song-min, 2016. "How can we make a socially optimal large-scale media platform? Analysis of a monopolistic Internet media platform using two-sided market theory," Telecommunications Policy, Elsevier, vol. 40(9), pages 899-918.
    8. Borck, Rainald & Wrede, Matthias, 2009. "Subsidies for intracity and intercity commuting," Journal of Urban Economics, Elsevier, vol. 66(1), pages 25-32, July.
    9. 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.
    10. Laurent Muzellec & Sébastien Ronteau & Mary Lambkin, 2015. "Two-sided Internet platforms: A business model lifecycle perspective," Post-Print hal-03718529, HAL.
    11. Mark Armstrong & Julian Wright, 2007. "Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 353-380, August.
    12. Richards, Timothy J. & Hamilton, Stephen F., 2018. "Food waste in the sharing economy," Food Policy, Elsevier, vol. 75(C), pages 109-123.
    13. Mark Armstrong Author-Email: mark.armstrong@ucl.ac.uk Author-Workplace-Name: University College of London, 2006. "Competition in Two-Sided Markets," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 668-691, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hui Zhang & Kai Luo & Guanqun Ni, 2022. "The effects of price subsidy and fairness concern on pricing and benefits of take-away supply chain," Journal of Combinatorial Optimization, Springer, vol. 43(5), pages 1106-1124, July.
    2. Zhou, Wei & Zhang, Keang & Zhang, Ying & Duan, Yunlong, 2021. "Operation strategies with respect to insurance subsidy optimization for online retailers dealing with large items," International Journal of Production Economics, Elsevier, vol. 232(C).
    3. Hui Zhang & Kai Luo & Guanqun Ni, 0. "The effects of price subsidy and fairness concern on pricing and benefits of take-away supply chain," Journal of Combinatorial Optimization, Springer, vol. 0, pages 1-19.
    4. Liang Shen & Fei Lin & Yuyan Wang & Xin Su & Hua Li & Rui Zhou, 2022. "Advertising Decisions of Platform Supply Chains Considering Network Externalities and Fairness Concerns," Mathematics, MDPI, vol. 10(13), pages 1-21, July.

    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. Choi, Jay Pil & Jeon, Doh-Shin, 2016. "A Leverage Theory of Tying in Two-Sided Markets," TSE Working Papers 16-689, Toulouse School of Economics (TSE), revised Oct 2019.
    3. Tommy Staahl Gabrielsen & Bjørn Olav Johansen & Teis Lunde Lømo, 2018. "Resale Price Maintenance In Two‐Sided Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 66(3), pages 570-609, September.
    4. Bruno Jullien & Alessandro Pavan, 2013. "Platform Competition under Dispersed Information," Discussion Papers 1568, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Ginger Zhe Jin & Marc Rysman, 2015. "Platform Pricing at Sports Card Conventions," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 704-735, December.
    6. Carrillo, Juan D. & Tan, Guofu, 2021. "Platform competition with complementary products," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    7. Jullien, Bruno & Pavan, Alessandro, 2013. "Platform Pricing under Dispersed Information," IDEI Working Papers 793, Institut d'Économie Industrielle (IDEI), Toulouse.
    8. Wang, Shiying & Chen, Huimiao & Wu, Desheng, 2019. "Regulating platform competition in two-sided markets under the O2O era," International Journal of Production Economics, Elsevier, vol. 215(C), pages 131-143.
    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. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).
    11. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    12. Wilfred Amaldoss & Jinzhao Du & Woochoel Shin, 2021. "Media Platforms’ Content Provision Strategies and Sources of Profits," Marketing Science, INFORMS, vol. 40(3), pages 527-547, May.
    13. Yannis Bakos & Hanna Halaburda, 2020. "Platform Competition with Multihoming on Both Sides: Subsidize or Not?," Management Science, INFORMS, vol. 66(12), pages 5599-5607, December.
    14. Van Cayseele Patrick & Reynaerts Jo, 2011. "Complementary Platforms," Review of Network Economics, De Gruyter, vol. 10(1), pages 1-33, March.
    15. Jeon, Doh-Shin & Jullien, Bruno & Klimenko, Mikhail, 2021. "Language, internet and platform competition," Journal of International Economics, Elsevier, vol. 131(C).
    16. Simon P. Anderson & Bruno Jullien, 2015. "The advertising-financed business model in two-sided media markets," Post-Print hal-02866192, HAL.
    17. Belleflamme, Paul & Peitz, Martin, 2010. "Platform competition and seller investment incentives," European Economic Review, Elsevier, vol. 54(8), pages 1059-1076, November.
    18. Subhasish M. Chowdhury & Stephen Martin, 2017. "Exclusivity and exclusion on platform Markets," Journal of Economics, Springer, vol. 120(2), pages 95-118, March.
    19. Iñigo Herguera, 2021. "Competencia y regulación de (algunas) plataformas digitales en la UE," Working Papers 2021-10, FEDEA.
    20. 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.

    More about this item

    Statistics

    Access and download statistics

    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:plo:pone00:0224369. 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: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    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.