Profit or welfare? Pricing decisions of a two-sided socially responsible platform

With the wide advocacy of ESG (environment, social, governance), it has been increasingly common for firms to consider ESG indicators such as social welfare and consumer welfare when they optimize their profit. Considering a two-sided sharing platform (such as Meituan) that links a group of service providers and a group of consumers, this paper studies the pricing decisions for a platform that is bilateral socially responsible. The platform seeks to optimize its profits, as well as the welfare of service providers and surplus of consumers. We model the platform’s objective function as a weighted summation of these three sub-objectives, with the weights on the latter two reflecting the platform’s concern level towards welfare of service providers and consumers, respectively. Starting from the choice behavior of service providers and consumers, we study the optimal pricing decisions for the platform under two scenarios, i.e., deterministic and stochastic market demands. The study shows that under deterministic market demand, the platform can always perfectly match supply and demand through two-sided pricing. Compared to a platform that only focuses on its own profit, concern on welfare of service providers and consumers will lead to an improvement of welfare on both sides, but at the cost of a decrease in platform’s profit. Under stochastic market demand, the platform’s concern on welfare of service providers or consumers reduces the probability of successful matching for the users on the corresponding side, but contributes to the growth in their welfare; however, the welfare of the other side may be hurt. In particular, under certain conditions, being socially responsible can induce a “win-win-win” outcome in terms of the platform’s profit, welfare of service providers, and welfare of consumers. © 2024 Systems Engineering Society of China. All rights reserved.