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Platform break-even market share

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Abstract

This study characterizes break-even market share within the context of two-sided platform markets. It combines chicken-and-egg pricing with previously unexplored network-based measures of total addressable market and serviceable available market. In addition, it accounts for the density of transactions across a platform’s network. A network-based driver of market share is how the number of users on each side translates into the platform’s addressable market. A two-sided market-based driver is how fixed costs are spread over the total value of the indirect externality created on the platform’s subsidized side. For marketing managers, these and other facets matter for identifying how large a network-based platform need be to capture significant market value, which is a necessary datum for attracting internal or external financing; calculating break-even volume and market share for potential entrants; and forecasting whether the market is winner-take-all based on transaction density.

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Notes

  1. A user’s reservation utility is normalized to zero.

  2. If either side can initiate a transaction, this instead becomes \(\min\left\{N_i\cdot{log}_{b_i}\left(N_j\right),N_j\cdot{log}_{b_j}\left(N_i\right)\right\}\)  

  3. For serviceable available market proportional to \(N_i\cdot{log}_b\left(N_j\right)\), the total derivative is \({log}_b\left(N_j\right)+N_i\cdot\frac1{N_j\cdot ln\left(b\right)}>0\) for \(b>1.\)

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Acknowledgements

I have benefitted from helpful comments from an editor, Russ Winer, and three anonymous reviewers. Fruitful conversations with Sanjay Jain, Ernan Haruvy, and Betsy Arce were also of great assistance.

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  1. University of Texas at Dallas, 800 W. Campbell Rd, Richardson, TX, 75080, USA

    Daniel Arce

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Correspondence to Daniel Arce.

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Arce, D. Platform break-even market share. Mark Lett 34, 713–725 (2023). https://doi.org/10.1007/s11002-023-09674-7

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