In a two-sided market with network effects, the platform will most likely
A) set the same prices for the two sides of the market.
B) set different prices for the two sides of the market.
C) set a price of zero for both sides of the market.
D) combine the two groups of the market before setting its price.

Question

Quizplus · Accepted Answer

In a two-sided market with network effects, both sides of the market are dependent on the other to generate value, and this interdependence creates a chicken-and-egg problem. Therefore, the platform needs to incentivize both sides to join and use the platform. However, since the two sides have different willingness-to-pay and value propositions, the platform needs to set different prices to cater to their needs. For example, a platform might charge a lower price to the side that is less price-sensitive but provides high value to the other side, and vice versa. By setting different prices, the platform can balance the participation of both sides and increase the platform's overall value.

In a Two-Sided Market with Network Effects, the Platform Will