Channel Management for Digital Products in the Two-sided Market with Network Externality Effects

Channel selection is a critical trade-off for digital products firms whose are characterized by network externality. This work develops the models of consumers’ utility impacted externality two channel strategies product in two-sided market: direct strategy and platform strategy. Deriving from utility, optimization presented. The solved through Lagrangian method, comparative statics analysis conducted to investigate effect on optimality. Mathematical results show that if intensity online surpasses channel, dominates other strategy; otherwise, firms’ optimal decision. In addition, channels share equal price, profit (and demand) would be positively products’ features but negatively learning cost. provides decision support context market.