What is two-sided market?

A two-sided market links two distinct groups of users through a platform, and each group's benefit depends on how many of the other group take part. It matters because the platform must attract both sides at once, and its pricing to one side affects the other.

How it works

The platform creates value by matching the two groups. More sellers attract more buyers, and more buyers attract more sellers, which is a cross-side network effect. The first problem is the chicken-and-egg start: neither side wants to join an empty platform.

Platforms handle this by charging the two sides differently. They often subsidize the side that is more sensitive to price or more valuable to the other, and charge the side that benefits most. The total price matters less than how it is split, and finding the right split is a balance between growth on each side and revenue.

Example

Say a delivery platform has 1,000 restaurants and 10,000 diners. Each added restaurant brings in 5 more diners, and each added 10 diners bring in 1 more restaurant. The platform charges restaurants a 15 percent fee and diners nothing. If it raises the diner fee to 2 per order, diners fall by 20 percent, which then drops restaurant sign-ups as well. The loop between sides amplifies the loss. These numbers are an illustration.

How to model it in Machinations

Create two Pools, Restaurants and Diners, each with a Source of new members and a Drain of leavers. Link them with state connections so that each Pool's size raises the other's sign-up rate. Add Levers for each side's fee, and a Register that computes platform revenue. Play with a diner fee of 0 and of 2 and chart both Pools and revenue to see how the split changes growth.