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Digital Platforms’ Pricing Should Balance Market Mechanism and Social Impact

Sep 28-2023   



At the current moment when China’s platform economy is transitioning from a rectification campaign to normalized supervision, it is imperative to assess the rationality of the ‘invisible hand’ in the pricing practices of the platform economy and identify the role of the ‘visible hand’, wrote Prof. Huang Yiping and Prof. Hu Jiayin, both of the NSD, in a commentary. Prof. Huang is NSD Jinguang Chair Professor of Finance and Economics, NSD Deputy Dean, and Director of PKU Institute of Digital Finance (IDF). Prof. Hu is NSD Assistant Professor and IDF research fellow.

 

Features such as network effect, economy of scale, and economy of scope are prone to enable platform enterprises to acquire relatively significant market shares and market influences. Therein lies the concern of many consumers about if their prices are rationally set. The two authors believed that a good platform economy pricing mechanism should rely on the joint roles of market mechanism and regulatory policy. The former, by having the full participation of competitive forces in the market, seeks to achieve ‘procedural justice’; the latter, on the other hand, aims for ‘justice in result’ by landing the final prices of on platforms in a range deemed acceptable by the multiple participants involved.

 

Ideally, regulatory policy should be capable of facilitating the virtuous functioning of the mechanism, the authors pointed out. To do so, such policy should focus on setting the basic pricing rules for the platform economy while enhancing the competition level in the market. They cautioned against capping prices in a simplistic and brutal way, which can easily dent the market mechanism and backfire.

 

Platform enterprises should also be encouraged to provide consumers and small and medium-sized businesses with more added values through digital technology. Another goal of regulatory policy should be creating a more inclusive policy environment which lowers market entry barriers and strengthens contestability.

 

For the two authors, combining the roles of ‘effective government’ and ‘efficient market’ can better safeguard the legitimate interests of consumers, spark the innovative vitality of platforms and small and medium-sized businesses alike, and spur the sustainable and healthy development of China’s digital economy.

 

Digital Platforms’ Pricing Should Balance Market Mechanism and Social Impact

Sep 28-2023   



At the current moment when China’s platform economy is transitioning from a rectification campaign to normalized supervision, it is imperative to assess the rationality of the ‘invisible hand’ in the pricing practices of the platform economy and identify the role of the ‘visible hand’, wrote Prof. Huang Yiping and Prof. Hu Jiayin, both of the NSD, in a commentary. Prof. Huang is NSD Jinguang Chair Professor of Finance and Economics, NSD Deputy Dean, and Director of PKU Institute of Digital Finance (IDF). Prof. Hu is NSD Assistant Professor and IDF research fellow.

 

Features such as network effect, economy of scale, and economy of scope are prone to enable platform enterprises to acquire relatively significant market shares and market influences. Therein lies the concern of many consumers about if their prices are rationally set. The two authors believed that a good platform economy pricing mechanism should rely on the joint roles of market mechanism and regulatory policy. The former, by having the full participation of competitive forces in the market, seeks to achieve ‘procedural justice’; the latter, on the other hand, aims for ‘justice in result’ by landing the final prices of on platforms in a range deemed acceptable by the multiple participants involved.

 

Ideally, regulatory policy should be capable of facilitating the virtuous functioning of the mechanism, the authors pointed out. To do so, such policy should focus on setting the basic pricing rules for the platform economy while enhancing the competition level in the market. They cautioned against capping prices in a simplistic and brutal way, which can easily dent the market mechanism and backfire.

 

Platform enterprises should also be encouraged to provide consumers and small and medium-sized businesses with more added values through digital technology. Another goal of regulatory policy should be creating a more inclusive policy environment which lowers market entry barriers and strengthens contestability.

 

For the two authors, combining the roles of ‘effective government’ and ‘efficient market’ can better safeguard the legitimate interests of consumers, spark the innovative vitality of platforms and small and medium-sized businesses alike, and spur the sustainable and healthy development of China’s digital economy.