Two-Sided Markets

A two-sided market can create value by simplifying and accelerating transactions, as well as lower their cost for the parties it connects. As a two-sided network grows, successful platforms are able to scale. Users, seeing a larger potential marketplace, will then pay a higher price to access the platform. Two-sided marketplaces have an advantage over traditional one-sided markets (often found in service or manufacturing-oriented businesses), which at some point experience diminishing returns on market growth (customer acquisition).

A two-sided market is often defined by the relationship the intermediary has with the external groups or agents on its platform. This relationship is seen in pricing in particular. Those that oversee platforms must maintain equilibrium between both sides of the network, sometimes subsiding the more price-sensitive side a...