Sustainable Operations of Two-Sided Platforms Coupled with Hardware Products: Pricing and Government Subsidy Strategies

Abstract

With the rapid development of digital technologies, hardware products in two-sided platforms are continuously upgraded, creating challenges for the economic and operational sustainability of platform ecosystems. Platforms must address not only consumers’ strategic waiting behavior but also horizontal seller competition when making pricing decisions. To stimulate consumption and promote product upgrading, governments have introduced subsidy programs for end consumers. This paper develops a two-period dynamic game model involving the government, a monopolistic two-sided platform, buyers, and sellers to examine the effects of three subsidy schemes—no subsidy, consumption subsidy, and trade-in subsidy—on platform pricing, market equilibrium, and social welfare. The results show that: Consumption subsidies intensify buyers’ strategic waiting behavior, reduce current demand for original products, and exacerbate seller competition; as seller competition weakens, platforms reduce product prices and increase seller commissions under all subsidy schemes; and the trade-in subsidy effectively promotes product upgrading and avoids demand cannibalization while maximizing social welfare and generating the highest platform profit and seller surplus, thereby aligning the government’s welfare objective with stakeholder participation incentives and supporting the sustainable operation of the platform. This study enriches the literature on revenue management and two-sided markets. The findings provide theoretical support for platforms’ intertemporal pricing decisions and offer policy implications for designing economically sustainable government subsidy programs for hardware products in two-sided platforms.