The Optimal Pricing Strategy of a Mobile Payment Service in a Two-sided Market

Acknowledging the high penetration rate of mobile devices, mobile payment is currently a hot topic and is expected to reach the tipping point of rapid growth. For such a nascent market, how to run a successful mobile payment platform remains unanswered. Therefore, we devote this study to investigate the pricing strategy of proximity mobile payment. Mobile payment serves as a two-sided platform connecting merchants and customers. By leveraging the emergent mobile payment knowledge, we present a game-theoretic model featuring network externality. In the short run, we find the platform will have incentives to apply “divide and conquer” strategy by subsidizing customers to adopt the mobile payment service at the beginning of the business. After the ignition, the platform then becomes profitable by charging per transaction fee from the merchants. In the long run, the subsidization strategy is suggested to be applied when the bank is not taking too much processing fee and leaves sufficient market share to the mobile payment platform. In terms of contributions to practice, this study offers a step forward of method to identify this promising market for mobile payment executives, financial institutes and all others ecosystem