Performance investment decision and pricing strategy for platforms considering two‐sided users' different preferences

Abstract This paper examines a hybrid strategy of pricing control and performance investment for two‐sided platforms. While many studies have investigated performance improvement in two‐sided markets, few studies have noticed that users may have different investment preferences. We build a strategic model to explore how platforms can make a trade‐off between investing in high performance to satisfy customer preferences versus reducing investment to facilitate service provider participation. We provide insights on the optimum investment strategy and the corresponding charging or subsidizing controls and demonstrate how ignoring the opposite preferences can lead to errors in investing in platform performance.