Fly with social platform? Two-sided platform cooperation and pricing strategy considering same-side crowding out

The cooperation between two-sided platforms and social media platforms has become an emerging business model, with social platforms utilizing their extensive reach to attract fresh traffic to the two-sided platforms. However, with the expansion of the user base on these platforms, there is a potential for crowding out effects among users with similar interests. Meanwhile, determining whether the promotion on social platforms can generate profits for two-sided platform apps poses a significant challenge. To address this deficiency, a model is proposed to investigate the cooperative relationship between two-sided platforms and social platform under different user attribution scenarios. We utilize the Hotelling framework to analyze the competition between two-sided platforms in scenarios where neither platform cooperates with social media, and one platform does. Our analysis aims to survey whether such cooperation leads to increased profits or higher prices for the platform. The results indicate that: (1) When users are single-homing, same-side crowding-out has a stimulating effect on platform profits and prices. In contrast, cross-side network effects have a reverse effect. (2) Basic utility and cross-side network effects promote multi-homing behavior. When users on both sides are multi-homing, cooperation will result in a higher price for both two-sided platforms. (3) A two-sided platform that does not cooperate with social media is not necessarily at a significant disadvantage. If the cross-side network effects are large enough, such a platform can still gain an advantage. (4) A cooperating two-sided platform should strive to attract more traffic through the promotion of a social media platform, which can be beneficial to both competing two-sided platforms. Our findings provide useful managerial insights into cooperation strategies between two-sided platforms and social media platforms.