Cross-Store Discount or Purchase Subsidy？ Promotion Strategy of E-commerce Platforms Based on the Two-Sided Market Theory

This paper investigates two different promotion strategies of e-commerce platforms, i.e., the cross-store discount strategy and the purchase subsidy strategy. We take the additional utility and the degree of merchant concessions on price under the cross-store discount strategy into account and analyze how they affect platforms’ optimal promotion strategy. Result shows that the additional utility is the determining factor of platforms’ strategy choice. More precisely, when the two platforms adopt different promotion strategies, only when the additional utility is greater than a certain threshold may adopting the cross-store discount strategy bring more profits, and the threshold of the additional utility depends on promotion costs and the degree of merchant concessions on price. When the two platforms adopt the same promotion strategy, without the consideration of promotion costs, adopting the cross-store discount strategy simultaneously can make the platforms more profitable. In addition, whether a platform should change its promotion strategy depends on the value of the additional utility under the cross-store discount strategy. When the value of that utility is within a certain interval, both the platforms tend to maintain their original promotion strategy.