Question 3 (Prof. Wu) Analytical Modeling for EC Business Model Innovations

(26/100 pts.)

2-sided platform business model search. Analyze a variant version of the digital platform competition game you played in class where (1) you are competing against a startup called NetZero, who will always charge the marginal cost per user at each round, and (2) you only play two rounds. You want to maximize your total profit over two rounds.

Assume the price range is between 0 and 40, i.e. 0 < ps < 40, and 0 < pc < 40. Assume further that there are no churns on either side.

Please use the attached Excel book where we have coded in all needed math formula, and answer the following questions. Submit your Excel book along with your exam (name your excel book using your last name and first name).

Hint: You only need to change the cells marked in Yellow, i.e., D5, E5, F5, G5.

Cell C11 is your initially seeding number of consumers, meaning C11=qc=5 for round 0.

Note that we have fixed B11=qs=10 for round 0, meaning your initially seeding number of suppliers is always 10.

Cell B18 = c, is your cost per customer (either serving a supplier or a consumer).

You can play with D5, E5, F5, G5 in order to maximize your total profit (N16). For each question (a)-(d) below, you need to get all four numbers correct – truly maximize your total profit. No partial credit(s) will be given for sub-optimal solutions.

For your convenience, in the Excel book, we have created an Excel sheet corresponding to each question below, i.e., sheet (a) is for question (a), sheet (b) is for question (b), etc.

1. (4 points) Suppose C11=qc=8 for round 0 (this is your initially seeding number of consumers), B18=c=5. Given B11=qs=10 for round 0, D19=SNE=2 (Supply Network Effect), E19=CNE=2 (Consumer Network Effect). Use the spreadsheet (a) and search for your pricing strategy for both sides over two rounds. Fill your optimal pricing strategies below: Round 1 2

2. (4 points) Now suppose C11=qc=120 for round 0, B18=c=15. Given B11=qs=10 for round 0, D19=SNE=2, E19=CNE=2. Use the spreadsheet (b) and search for your pricing strategy for both sides over two rounds. Fill your optimal pricing strategies below: Round 1 2

3. (4 points) Suppose C11=qc=5 for round 0, B18=c=15. Given B11=qs=10 for round 0, D19=SNE=2, E19=CNE=2. Use the spreadsheet (c) and search for your pricing strategy for both sides over two rounds. Fill your optimal pricing strategies below:
 Round 1 2
1. (4 points) Suppose C11=qc=120 for round 0, B18=c=30. Given B11=qs=10 for round 0, D19=SNE=2, E19=CNE=2. Use the spreadsheet (d) and search for your pricing strategy for both sides over two rounds. Fill your optimal pricing strategies below: Round 1 2

2. (10 points) Discuss implications of your above analysis (a) – (d) for EC platform business model innovations, e.g., you may use real life case examples (either covered in our EC sessions or based on your own research) to illustrate (to the extent possible) the insights derived from (a) – (d).