Internet Free Economic Analysis Based On Two-part Tariff Theory

The rapid development of Internet technology has brought a new industrial chain and consumer groups, many large Internet companies commit to develop new business models to deal with the fierce market competition. This also provides a new topic for economic research. Many scholars put forward different point of views, representative of the bilateral market theory, free economic theory, nonlinear pricing theory, to study the Internet business model. Business models in economics is the essence of pricing theory, that is to say, the pricing strategy under the constraints of the profit maximization.Most Internet companies’products and services are free,which the more profit is derived from the value-added part of the user experience and similar value-added business. This article is based on Tencent business system, revenue system and the development process of research, business model will be summarized as Tencent instant messaging platform and network media platforms to achieve Internet value-added services related products, mobile value-added services related products, network advertising and e-Business transactions and payments related income through conversion rates.Means that Tencent is not paid directly through consumer groups to achieve profits,but to provide value-added services or similar value-added services for consumers with lower elasticity to achieve this goal.Business model through this link of conversion rates to indirectly maximize profits is quite different with the platform in the bilateral market theory, characterized more consistent with two pricing theory. Through the access platforms and value-added platform to screen out pricing consumers with different elasticity it achieve the best platform strategy.Two pricing mathematical models of the Internet business model concludes that Internet companies to maximize profits constraints tend to choose lower access platform fees and charges a higher value-added platform pricing strategy.The cost of Internet companies usually have a high fixed cost characteristics, the product is almost zero marginal cost of replication. Thus, by relaxing the assumption, extending the traditional model of Bertrand price competition model to competition for market share, it can be concluded:Internet companies most appropriate pricing model is the introduction of free end of the access platform, expanding consumer groups,while the follow-up into the value-added platform consumers can charge higher fee for the value-added services, grab consumer surplus of lower elasticity consumers and thus maximize profits.Tencent’s characteristics that the whole industry chain promote the significance of having a study for Tencent’s business model to, this paper studies on Tencent business model for the Internet industry is applicable. Despite the reality of the Internet industry that many industry giants phenomena, such as Baidu,Tencent,etc.which occupy almost the entire market share. These phenomena usually are associated with the transfer costs and standards, cross-network externality exogenous variables. Earlier entry, greater network coverage and more recognized standards will affect the reality of the industry competitive landscape.Study about the Internet free economics of Tencent business model aims to bring this promising industry into economics research, although in the study of free economics there are many management sense in pricing strategy and other factors, the essence of free economics in economics is the two pricing. Therefore, in this paper, except the conclusions of economics nature of Tencent business model, there are also the use of economics methodology explain the emerging industry characteristics.