Strategies for Two Sided Markets

Posted: 16 Mar 2014

See all articles by Thomas R. Eisenmann

Thomas R. Eisenmann

Harvard University - Entrepreneurial Management Unit

Geoffrey Parker

Dartmouth College

Marshall W. Van Alstyne

Boston University – Questrom School of Business

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

Eisenmann, Thomas R. and Parker, Geoffrey and Van Alstyne, Marshall W., Strategies for Two Sided Markets (October 1, 2006). Harvard Business Review, Vol. October, 2006. Available at SSRN: https://ssrn.com/abstract=2409276

Thomas R. Eisenmann (Contact Author)

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

Geoffrey Parker

Dartmouth College ( email )

Department of Sociology
Hanover, NH 03755
United States
603-646-9075 (Phone)

HOME PAGE: http://engineering.dartmouth.edu/people/faculty/geoffrey-parker

Marshall W. Van Alstyne

Boston University – Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-358-3571 (Phone)

HOME PAGE: http://questromapps.bu.edu/mgmt_new/Profiles/VanAlstyneMarshall.html

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