Strategies for Two Sided Markets

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 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 overlap users of another, there is an…