what is a two-sided market and why does two-sidedness matter?
On the former question, the recent literature has been mostly industry specific and has had much of a You know a two-sided market when you see it flavor. Getting the two sides on board is a useful characterization, but it is not restrictive enough. Indeed, if the analysis just stopped there, pretty much any market would be two-sided, since buyers and sellers need to be brought together for markets to exist and gains from trade to be realized. We define a two-sided market as one in which the volume of transactions between end-users depends on the structure and not only on the overall level of the fees charged by the platform. A platforms usage or variable charges impact the two sides willingness to trade once on the platform, and thereby their net surpluses from potential interactions; the platforms membership or fixed charges in turn condition the end-users presence on the platform. The platforms fine design of the structure of variable and fixed charges is relevant only if the two sid
On the former question, the recent literature has been mostly industry specific and has had much of a “You know a two-sided market when you see it” flavor. “Getting the two sides on board” is a useful characterization, but it is not restrictive enough. Indeed, if the analysis just stopped there, pretty much any market would be two-sided, since buyers and sellers need to be brought together for markets to exist and gains from trade to be realized. We define a two-sided market as one in which the volume of transactions between end-users depends on the structure and not only on the overall level of the fees charged by the platform. A platform’s usage or variable charges impact the two sides’ willingness to trade once on the platform and, thereby, their net surpluses from potential interactions; the platforms’ membership or fixed charges in turn condition the end-users’ presence on the platform. The platforms’ fine design of the structure of variable and fixed charges is relevant only if t
