Optimal Value-Added Service Outsourcing Strategies and Bilateral Pricing Decisions of Two-Sided Platforms with Symmetric Cross-Network Externalities

Value-added services (VASs) are widely used to incentivize user adoption in the platform economy. While considering the symmetry of cross-network externalities of a platform, i.e., suppliers and manufacturers exert balanced and mutually reinforcing influences on each other’s participation, this study develops a stylized game model to investigate platforms’ optimal bilateral user pricing decisions and VAS provision strategies, such as outsourcing to a third-party service provider (Model OS) or in-house provision (Model PS). Then, the platform’s and the third-party service provider’s optimal pricing decisions are derived, and the equilibrium results are compared. The findings demonstrate that a platform should implement Model PS when the outsourced VAS cost coefficient is sufficiently high or the outsourced VAS quality and cost coefficient are low concurrently. Only when the outsourced VAS quality is relatively high and cost coefficient is in a low range should a platform choose Model OS. Additionally, to address the problem of declines in supply chain members’ profits caused by investment in low-quality outsourced VASs (VAS utility provided by a third party exceeds the specific value 1.38), this study also proposes a feasible VAS cost-sharing contract (Model CS) to incentivize the third-party provider to provide investment in high-quality VASs. The contract design can achieve a “win-win” outcome when the sharing ratio is at a moderate rate (especially a range from 0.291 to 0.5) and the outsourced VAS cost coefficient meets suitable thresholds.