Two-Sided Digital Markets: Disruptive Chance Meets Chicken or Egg Causality Dilemma

Abstract

Digital two-sided markets exist in many economic sectors. Well-known successful two-sided markets such as Facebook, Uber, or AirBnB illustrate their huge potential for growth. However, this potential can only be unlocked if the market manages to reach a critical mass of users on both market sides, the provider and the consumer side. Having reached a critical mass, the market attracts further consumers and providers, which in turn strengthens the direct and indirect effect. The problem new markets face is called chicken or egg causality dilemma and there is evidence that it can be approached by using the strategic approaches of network economics. Although there exist evaluations of successful companies regarding their initial strategic approach and problems, there are only few generic recommendations for overcoming the chicken or egg causality dilemma from practice-oriented research. None of those shed light on the combinability of strategic approaches. We attend to this lack of guidance and compile approaches from various sources, which have been used by successful platform operators. Our evaluation is based on published case studies as well as on an expert survey. Our results indicate beneficial combination of strategies as opposed to one-dimensional approaches for different types of two-sided markets.