Two-sided Marketplace

Definition

A two-sided marketplace is a platform that connects two groups, such as buyers and sellers, where each group’s value grows with the size of the other. The platform sets the rules for listings, ranking and fees, so the numbers it shows reflect its design as well as the market.

In plain terms

Buyers come where the sellers are; sellers come where the buyers are. The platform sits between them and makes many decisions: how results are ordered, which offer is featured, what is shown as sponsored, how ranks are computed, what the fees are.

This matters for anyone who reads platform data. A rank, a badge or a position is a product of platform rules, and when the rules change, the data change even though the market did not. Platform data is a view of the market through the platform, not a neutral census.

Example

A platform changes how it orders search results in March, giving more weight to recent sales. A seller’s items are unchanged in price and quality.

The 60% rise in visits looks like growing demand, but it follows the rule change. Without knowing that the ordering rules changed, the data suggest a market effect that is not there.

Common misunderstandings

• “Platform data is the market.” It is the market as seen through the platform’s rules and coverage.
• “Ranks and positions are neutral.” They are produced by formulas the platform chooses and can change.
• “A change in the numbers is a change in demand.” It can be a change in the platform.