Faculty of Economics and Business Administration Publications Database

Network Effects in Two-sided Markets: Why a 50/50 User Split is not Necessarily Revenue-Optimal

Authors:
Voigt, Sebastian
Source:
Volume: 8
Number: 1
Pages: 139 - 170
ISSN-Print: 2198-3402
Link External Source: Online Version
Year: 2015
Keywords: Network effects; Two-sided markets; Online dating; Willingness to pay; Revenue optimization
Abstract:

Our study applies empirical scrutiny to the network effects of a leading European online dating platform. While one might expect equal gender representation on such a platform to yield the best user experience and the highest revenue per user, our analysis shows that the platform requires only 36.2 % of its user base to be female to maximize revenue, primarily because women exert stronger positive cross-side network effects on men than vice versa; this optimum results in 17.2 % higher sales than a 50/50 split. Intermediaries of two-sided markets can use our model to improve user acquisition strategies.

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