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Optimal pricing for a peer-to-peer sharing platform under network externalities

Published: 18 June 2018 Publication History

Abstract

In this paper, we analyse how a peer-to-peer sharing platform should price its service (when imagined as an excludable public good) to maximize profit, when each user's participation adds value to the platform service by creating a positive externality to other participants. To characterize network externalities as a function of the number of participants, we consider different bounded and unbounded user utility models. The bounded utility model fits many infrastructure sharing applications with bounded network value, in which complete coverage has a finite user valuation (e.g., WiFi or hotspot). The unbounded utility model fits the large scale data sharing and explosion in social media, where it is expected that the network value follows Metcalfe's or Zipf's law. For both models, we analyze the optimal pricing schemes to select heterogeneous users in the platform under complete and incomplete information of users' service valuations. We propose the concept of price of information (PoI) to characterize the profit loss due to lack of information, and present provable PoI bounds for different utility models. We show that the PoI = 2 for the bounded utility model, meaning that just half of profit is lost, whereas the PoI ≥ 2 for the unbounded utility model and increases as for a less concave utility function. We also show that the complicated differentiated pricing scheme which is optimal under incomplete user information, can be replaced by a single uniform price scheme that is asymptotic optimal. Finally, we extend our pricing schemes to a two-sided market by including a new group of 'pure' service users contributing no externalities, and show that the platform may charge zero price to the original group of users in order to attract the pure user group.

References

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Y. Li, C. Courcoubetis, L. Duan, and R. Weber. 2018. Optimal pricing for a peer-to-peer sharing platform under network externalities. Technical Report. https://arxiv.org/abs/1805.09616
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Juniper Research. 2017. Sharing economy revenues to double by 2022, reaching over $40 billlion. Retrieved Apr 24, 2018 from https://www.juniperresearch. com/press/press-releases/sharing-economy-revenues-to-double-by-2022
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  • (2021)Optimal Pricing for Peer-to-Peer Sharing With Network ExternalitiesIEEE/ACM Transactions on Networking10.1109/TNET.2020.302939829:1(148-161)Online publication date: 16-Feb-2021

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  1. Optimal pricing for a peer-to-peer sharing platform under network externalities

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    cover image ACM Conferences
    NetEcon '18: Proceedings of the 13th Workshop on Economics of Networks, Systems and Computation
    June 2018
    35 pages
    ISBN:9781450359160
    DOI:10.1145/3230654
    Permission to make digital or hard copies of all or part of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for components of this work owned by others than ACM must be honored. Abstracting with credit is permitted. To copy otherwise, or republish, to post on servers or to redistribute to lists, requires prior specific permission and/or a fee. Request permissions from [email protected]

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    Published: 18 June 2018

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    • Singapore Ministry of Education Academic Research Fund Tier 2

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    NetEcon '18 Paper Acceptance Rate 10 of 18 submissions, 56%;
    Overall Acceptance Rate 10 of 18 submissions, 56%

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    • (2021)Optimal Pricing for Peer-to-Peer Sharing With Network ExternalitiesIEEE/ACM Transactions on Networking10.1109/TNET.2020.302939829:1(148-161)Online publication date: 16-Feb-2021

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