Strategies for Two Sided Markets
Posted: 16 Mar 2014
Date Written: October 1, 2006
Abstract
When markets have different types of users that attract one another, more demand from one group can spur additional demand from the matched group in a virtuous cycle. These effects are often present in platform markets. Examples include application developers/users, credit card merchants/cardholders, and dating sites for men/women. Network effects in these two-sided markets significantly affect prices, competition, and industry concentration. Prices generally fall for the group that is the stronger attractor. Winner-take-all markets can arise depending on the strength of these network effects, economies of supply, specialization, and multihoming. Finally, when users of one platform overlap users of another, there is an opportunity for "platform envelopment" where one platform swallows a competitor. Bundling features that attract one group of the competitor's users can bring along the matching group.
Keywords: two sided markets, network effects, winner take all, multihoming, platforms, envelopment
JEL Classification: D4, D71, H23, K21, L11, L12, M21
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Two-Sided Platforms: Pricing and Social Efficiency
By Andrei Hagiu
-
A Price Theory of Multi-Sided Platforms
By E. Glen Weyl
-
Empirics of Antitrust in Two-Sided Markets
By Marc Rysman
-
Platform Owner Entry and Innovation in Complementary Markets: Evidence from Intel
-
Indirect Network Effects and Adoption Externalities
By Jeffrey Church, Neil Gandal, ...
-
Indirect Network Effects and Adoption Externalities
By Jeffrey Church, Neil Gandal, ...
-
Merchant or Two-Sided Platform?
By Andrei Hagiu
-
Proprietary vs. Open Two-Sided Platforms and Social Efficiency
By Andrei Hagiu