Two-Sided Markets

TwoSidedPlatformTwo-sided markets, also called two-sided networks, are economic platforms having two distinct user groups that provide each other with network benefits (figure from¬†Eisenmann, Parker, Van Alstyne, 2009). Example markets include credit cards, composed of cardholders and merchants; HMOs (patients and doctors); operating systems (end-users and developers), travel reservation services (travelers and airlines); yellow pages (advertisers and consumers); video game consoles (gamers and game developers); and communication networks, such as the Internet. Benefits to each group exhibit demand economies of scale. Consumers, for example, prefer credit cards honored by more merchants, while merchants prefer cards carried by more consumers. They are particularly useful for analyzing the chicken-and-egg problem of standards battles, such as the competition between VHS and Beta. They are also useful in explaining many free pricing or “freemium” strategies where one user group gets free use of the platform in order to attract the other user group. Two-sided markets represent a refinement of the concept of network effects. They were conceived independently by Parker & Van Alstyne (2000;2000;¬†2005) to explain behavior in software markets and Rochet & Tirole (2003) to explain behavior in credit card markets.

One Comment

  1. Activating Network Effects | Gumtree | Karl Markiewicz
    April 19, 2015 @ 12:50 am


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