Strategies for Two-

Sided Markets
Group 6
Harsh Gulati: 210144
Nimmy Rajan: 210156
Saurabh Soparkar: 210185
Pratik Paik: 2010052
Yushey Ahmed Tusi: 2110196
 INTRODUCTION
A two-sided market, also called a two-sided network, is an intermediary economic platform having two distinct user groups that
provide each other with network benefits.
The two groups are attracted to each other a phenomenon called the network effect. Because of network effects, successful
platforms enjoy increasing returns to scale.
 Challenge 1: Pricing the Platform
Platform providers have to choose a price for each side, factoring in impact on the other side’s growth and willingness
to pay.

● Your giveaway will be wasted if your network’s subsidy

01 Ability to capture cross-side

network effects
side can transact with a rival platform provider’s money
side.

● Subsidize the sensitive side and charge the side

which grows in respect to sensitive side. For ex,

02 User sensitivity to price

Adobe’s Acrobat software’s users are readers and
writers. It makes sense to not to charge readers
who won’t be willing to pay and charge writer’s
instead who value huge audience.

03 User sensitivity to quality ● Charge the side that must supply quality. For ex, to
deliver compelling quality, game developers incur
enormous fixed costs.
● When the subsidized products given to customers,
can create high variable costs, it will eventually lead

04 Output costs company to losses. So platform providers must be

more careful in these cases. Ex: FreePC providing
free computers and Internet access.

● In the case of negative same side effects, platform

05 Same-side network effects providers should consider granting exclusive rights

to a single user in each category.
 Challenge 2: Winner-Take-All Dynamics

A critical strategic prospect whether to dominate the whole market

or to share the platform.
Examples- Xbox and Playstation, DVDs etc..
Neither side of users
having a strong
preference for special
Winning the Battle and to fight successfully we need, features

Differentiation and cost advantages

Three factors which include existing relationship in market, Key

reputation for winning, deep pockets features
First movers can have advantage and so as late movers too Positive and strong for
users on the network Multi-Homing costs
by learning from others mistake are high for one user
side with high Multi-
homing costs side
Need to move fast but not too fast as increasing user base
will hit your production scaling

Need to manage cash efficiently

 Challenge 3: Envelopment
● Threat of envelopment is the threat posed by an adjacent platform in the same market with overlapping user
bases.
● It usually manifests when a rival offers the same functionalities as your platform as part of a multiplatform
bundle.
● Bundling hurts standalone platforms.

Cameras, Music players, Calculators Mobile Phones

Standalone Booking, Shopping & Bill

Paytm / Amazon
Payment Platforms
● Defense Mechanisms against Envelopment
● Change Business Models
● Find a “Bigger Brother” or Allies
● Legal Action
 CONCLUSION
Bilateral networks or platforms often provide
economies of scale that are significantly
higher than traditional value chains. Despite
these benefits, many companies find it
challenging to develop these platforms
sustainably.
If we look at the present scenario, we
have now had to think about the charges
split between subscription payments and
variable transaction fees.
The winner, i.e., google play store, will apply a
policy to make in-app purchases through google
pay only. This type of decision has already
started hampering Paytm, Phonepe, and other
payment options available
In this article, we used some recent and classical
examples in addressing the challenges of
bilateral networks on adjacent platforms. There
is no easy answer, but seeing the challenges in
this article, we got some tools which we can use
forward with confidence.
Same side negative network effects This
effect is visible and can be understood
through the shortage of semiconductor
chips, where goods became scarce. It has
adverse network effects on the automobile
sector.
Wrong decisions are primarily based on the
assumption that network effect products behave
like traditional products, and administrators
make very flawed decisions.
THANKS!
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