Bargaining and Network Effects in Two-Sided Platforms: Evidence from Online Healthcare

Many important platforms, particularly in healthcare, hospitality, and content streaming, depend on a small number of strategic participants on the “seller” side. As a result, individual-level bargaining and participant-specific network effects are central to platform growth and profitability. This paper introduces a novel modeling framework that integrates bargaining outcomes with heterogeneous direct network and cross-network effects to capture platform evolution. We estimate participant-level direct network and cross-network effects based on the attributes of strategic sellers and assess how these shape bargaining outcomes. By modeling both time-varying, participant-specific network effects, which influence market growth, and their impact on bargaining outcomes, which affect profitability, our framework enables platforms to evaluate growth strategies. We apply the model to data from a major Chinese online healthcare platform connecting hospitals and consumers for health checkups. We find substantial heterogeneity in hospitals’ network effects, which drive variations in bargaining outcomes. Hospitals with stronger network effects negotiate lower commission rates, whereas the platform secures higher commission rates in markets where it holds a larger market share. Through policy simulations, we explore strategies including seeding, targeting sequence, and market entry. Our findings highlight key trade-offs between growing market size and maximizing profitability, offering insights for platforms built on negotiated partnerships.

History: Tat Chan served as the senior editor. This paper has been accepted for the Marketing Science Special Section on Digital Platforms in Marketing Science.

Funding: Financial support from the Research and Materials Development Fund at London Business School [RAMD_Zhang_X_24/25_8895 and RAMD_Zhang_X_25/26_2963] and Hong Kong University’s Seed Fund for Collaborative Research is gratefully acknowledged.

Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mksc.2024.0922.