Research On Pricing Mechanism Of Smart Mobile Operating System Based On Two-Sided Market Theory

Since2007, the new smart mobile operating system (SMOS) iOS and Android OS have brought to the industry an evolution with the formation of new business models and the development of related industries, but researches on SMOS in Industrial Economics is still rare. This paper first analyzes the two-sided market characteristics of SMOS, finding that it is a natural two-sided market, and can be further divided into three types:technological types, app store type and mobile advertising type. Then, this paper studies respectively the pricing mechanism under those three conditions with two-sided market theory and case studies. Some conclusions have drawn as follows:(1) Three factors contribute to SMOS pricing:marginal cost, conditional elasticity of demand and external revenue. The lower the marginal cost, the greater the conditional elasticity of demand and the greater external revenue SMOS firms face, the lower price will be taxed. Moreover, there may be the case of negative price (subsidies).(2) For technological types, characteristics of two-sided market are weak. SMOS firms should put more emphasis on marginal cost and elasticity of demand while pricing. Case studies show that early technological types SMOS firms profit through charging end-users, while app developers face less fees.(3) For app store type, the characteristics of two-sided market are strengthened. SMOS firms should give more consideration to the factors of external revenue while pricing. At the same time, with the development of the industry and the introduction of new business models, the marginal cost and conditional elasticity of demand have been undergoing many changes which support low price for the end-users and high price for the app developers. Case studies show that SMOS firms of app store type have achieved great success through being free for end users and sharing revenue with app developers.(4) For mobile advertising type, the advertising platform should set high price to the advertisers which generate negative externalities and low price to end-users which generate positive externalities. Because of its negative marginal cost and positive externalities, app developers should be compensated. Case Studies show that SMOS firms of mobile advertising type earn profit by charging advertisers and sharing revenue with app developers. Revenue-share here is substantially a kind of subsidies.