Vorlesung 8: Platforms for Commerce

Question 1

Platforms for commerce

Answer 1

▪ Transaction platforms
▪ Usually 2-sided markets:
▪ Digital platform acts as an intermediary between buyers and sellers
▪ Indirect network effects
▪ Physical and digital products and services are traded
▪ Risk of platform owner entry exists

Otto
EBay
Amazon
Alibaba

Question 2

Price differentiation (also price discrimination)

Answer 2

Question 3

First degree price differentiation

Answer 3

Question 4

Reverse pricing

Answer 4

▪ Consumers bid against a hidden threshold price
▪ If a consumer’s bid exceeds the threshold price, their individual “hammer
price” will be their bid
▪ The threshold price is unknown to consumers
▪ Successful bids are not (publicly) revealed
▪ No bidding competition between consumers
▪ This method falls somewhere between fixed
and personal pricing
(i.e., between first- and second order price differentiation)

Question 5

Second degree price differentiation: Versioning

Answer 5

▪ The main idea of versioning is to offer different variations of the product at different price levels
▪ Customers choose versions (and hence prices) freely: “Self-Selection”
▪ Product differentiation, for instance, through quality, functionality, etc. (and
combinations thereof)
▪ Problem: Which version(s) to offer at which prices?

Question 6

Bundling

Answer 6

Question 7

Bundling
Strategy I

Answer 7

Question 8

Bundling
Strategy II

Answer 8

Question 9

Bundling
Strategy III

Answer 9

Question 10

Third degree price differentiation

Answer 10

▪ Focus on customers (similar to first degree price differentiation)
▪ But: focus on openly observable characteristics -> What are categories?
▪ Allocating customers into groups
▪ Challenge: find robust groups
▪ e.g., Students, retirees, gender(?), time, location,…
▪ Difference to versioning: Self-selection vs. group-based (i.e., forced) selection
▪ Also used as a strategy of customer acquisition
(i.e., attract next generation of full-price customers)

Question 11

Pricing and digital platforms

Answer 11

▪ Plentitude of transactions on digital platforms
▪ Platforms collect data on transactions, suppliers and customers in many
forms, e.g., past sales data, sensors, keyboard strokes

Outcomes and issues:
▪ Approximating first degree price discrimination
▪ Data network effects
▪ Opportunities to offer or open up platforms to (developer) services
▪ Platform owner entry

Question 12

Digital services via digital platforms

Answer 12

When digital platforms provide digital services, they generate lock-in effects
▪ Impossible/ hard/ costly for users/ complementors to change service provider, e.g., rating portability on Amazon Marketplace, favorite songs and playlists on Spotify
▪ Changes in the service are automatically adopted
▪ In terms of service quality
▪ In terms of service costs→optimize pricing

Question 13

The Long tail phenomenon

Answer 13

Question 14

Long tails in practice: Video streaming

Answer 14

Question 15

Value determination / pricing on digital platforms

Answer 15

Examples of pricing strategies and value determination on digital platforms
▪ 1st degree price differentiation
▪ Auctions (e.g., ebay, swoopo, dealdash)
▪ Dynamic pricing (e.g., Uber surge pricing)
▪ 2nd degree price differentiation
▪ Freemium (e.g., YouTube, Spotify)
▪ 3rd degree price differentiation
▪ Student discounts (e.g., Spotify)
▪ Additional pricing choices made by digital platforms
▪ Individual prices set by provider (e.g., AirBnb, Amazon Marketplace, Fiverr)
▪ Fixed prices set by platform (e.g., Uber)
▪ Cost-oriented pricing (e.g., BlaBlaCar)
▪ Additional loyalty / membership / experience-based advantages offered by digital platforms (e.g., Amazon Prime, Fiverr levels etc.)