Optimal Pricing for Peer-to-Peer Sharing With Network Externalities

In this paper, we analyse how a peer-to-peer sharing platform should price its service to maximize profit, when user participation increases the value of the service to others by causing positive externalities. Modelling the service as an excludable public good, we propose a bounded utility model to capture many infrastructure sharing applications with bounded network value, in which complete coverage generates finite user valuation (e.g., WiFi or hotspot). Unbounded utility models are used to capture the large-scale user interactions in social media, where the network value follows Metcalfe's or Zipf's law. For these utility models, we analyze the optimal pricing schemes in the case of heterogeneous users under complete and incomplete information of users' service valuations. We propose the concept of 'price of information' ( PoI ) to characterize the profit loss due to lack of information, and present asymptotic PoI bounds for different utility models. We also show that the difficult-to-implement differentiated pricing scheme, which is optimal under incomplete user information, can be replaced by a simple uniform price scheme that is asymptotic optimal. Finally, we extend our pricing schemes to a two-sided market by including a new group of 'pure' service users who do not contribute to the public good, and show that the platform may charge zero price to the original group of users in order to attract this pure user group.