Platform targeted capability investment, seller price and advertising strategies

In order to achieve precision marketing, many platforms have focused on investing in targeted capabilities. This study develops a game model where a platform can decide whether and when to invest in targeted capability, if so, sell it to sellers or use it internally? Compared to the scenario without targeted capability, this research analyzes the influence of targeted capability investment on price and advertising strategies. The results show that, if the cost of advertising to the entire market is higher while the fixed investment cost is lower, the platform is more likely to invest in the targeted capability. When price discrimination is allowed and targeted capability has been invested, if the cost of advertising to the entire market is lower, the platform will sell the targeted capability to the seller and let the seller advertise; otherwise, the platform advertises to consumers. Moreover, this study examines price and advertising strategies variations under different circumstances and explores their underlying mechanisms.