Talking about Platforms Platform Classics: Chicken & Egg
Feb 7, 2025
Dive into the intriguing dynamics of platform competition, where the 'chicken and egg' problem challenges major players like Uber and Lyft. Discover how pricing strategies can create value in two-sided markets by balancing fees and subsidies. Explore the paradox of exclusivity as platforms navigate user loyalty and profitability. The conversation also highlights the evolution of competition driven by tech advancements, showcasing the dual impact of AI and personalization on the market.
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The Chicken and Egg Problem
- The "chicken and egg" problem describes the challenge platforms face in attracting both sides of a market.
- Pricing strategies, like registration and transaction fees, become crucial for success.
Divide and Conquer Pricing
- Platforms can employ a "divide and conquer" strategy, subsidizing one side of the market to attract the other.
- Both sides must perceive a non-negative expected surplus, ensuring value for all participants.
Exclusivity vs. Non-Exclusivity
- Exclusivity can lead to market dominance but fierce competition might reduce profits.
- Non-exclusivity, while seemingly less profitable, can relax competition and increase overall returns.