Two-sided markets are also known as two-sided networks are simply platforms of an economy that have two different user groups that supply one another with network benefits. Two-sided markets can be identified in several industries that share the space with products and services associated with the tradition. Such markets include credit cards that are composed of merchants and cardholders as well as night clubs where men hawk women and buy them drinks.
Levels of competition in the two-sided markets are the key determinants of the prevailing prices of goods and services that will be on offer in these markets. Both groups are brought together by the network effect. With two-sided market effects, the value of the platform to each user is largely dependent on the number of the users on the other side of the network. Value increases as the market matches demand of the both sides. For instance, a developer of a video game will develop games that are only for platforms with a considerable number of players. This is because, the developer will need a vast customer base, as this will enable him recover his upfront costs of programming. On the other hand, players will derive much satisfaction with platforms that have an expansive variety of games. Owing to the market effects, platforms that are successive usually have constantly increasing returns to scale, since users will tend to pay more in order to acquire access to bigger markets. This ensures that margins and consumer base increase. This approach sets market besides the traditional service, as well as manufacturing businesses. Traditionally, growth of businesses beyond a specific point usually results in diminishing returns and the acquisition of some new customers becomes almost not possible as less people find the value proposition of the firm appealing.
The promise of increasing returns in two-sided market industries fuels competition to very fierce levels. In turn, the leaders of the market are able to leverage their high margins so as to invest in lower prices and this drives the weaker rivals out of business. Consequently, a mature two-sided market industry is usually dominated by a few large platforms, like in credit card industry.
The pricing strategy was considerably successful and effective as it started low and gradually increased as the products and services acquired a good share of royal customers in the industry. This strategy was vital in ensuring that several consumers of goods and services found it appealing and was therefore lured into purchasing the food. Along the life cycle of the product or service, the prices would be adjusted upwards and depending on the prevailing market forces of the industry. Prices per round changed due to the fact that there was need to adjust prices, based on the prevailing market forces and other forces of demand and supply.
This strategy of pricing is inevitable in pricing newly introduced products or services of the two sided market economy as well as the newly established market platforms. This is because, for any product or service which thrives and commands a good market share in an industry there has to be strategies put in place that are intended to give such product or service an upper hand competition and this provides a good pricing foundation.