Abstract

Considering a two-sided software platform with software developers on one side and software users on the other, we study whether the platform should adopt a penetration pricing strategy or skimming pricing strategy on the developer side. A two-period analytical model with asymmetric cross-side network effects is proposed to analyze the platform’s optimal pricing strategy. Our analysis reveals the platform should adopt the penetration pricing strategy if the user-to-developer network effect is strong, and the skimming pricing strategy is optimal otherwise. When the platform charges no access fee from users, developers’ access may be subsidized in the first period only. However, when an access fee is charged from users, subsidizing access for developers in two periods can be viable for the platform. An access fee charged from the software users incentivizes the platform to subsidize the developers in the first period if the user-to-developer network effect is weak. Finally, this study reveals how the optimal access fee charged or subsidy provided to the developers in the two periods is determined by several key factors: developers’ basic expectation on the revenue gained from the platform (optimistic or pessimistic), intensities of cross-side network effects, lengths of the two periods, and access fee charged from the users.

DOI

10.17705/1jais.00748

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