Quality investment and subsidy strategies of platforms for smart home control hub

In the realm of smart homes, a smart speaker functions as the central control hub, seamlessly connecting platforms, consumers, and manufacturers. The emerging smart home platforms such as T-Mall and Amazon face the trade-off between quality investment of such IoT product which exhibits two-sided network externalities as well as expanding the smart ecosystem. This paper first extracts consumers’ functional preferences from online review data and then constructs an analytical model based on two-sided market to explore the interplay between quality investment and two-sided pricing decisions. This paper carries out a full analysis of three distinct settings: monopoly, duopoly, and partial multihoming. The conclusions indicate that when one side benefits from network externalities, the platform should not reduce the charges to the other side; In cases where consumers are single-homing while manufacturers are multihoming, the platform can subsidize both sides and reap commission revenues. However, in multihoming scenarios, the interdependence between the platform's two sides diminishes, rendering the subsidy strategy potentially inefficient. The success of this strategy hinges on consumers' varying preferences for standalone value and ecosystem effect. This research enriches two-sided market theory and furnishes practical guidance for platforms navigating quality investment and pricing decisions within the smart home industry.