Two-Sided Markets and Social Media

Two-Sided Markets and Social Media

Xiaojing Lu (Shanghai Jiao Tong University, China), Ronald E. Goldsmith (Florida State University, USA) and Margherita Pagani (Bocconi University, Italy)
DOI: 10.4018/978-1-4666-4026-9.ch010
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Abstract

This chapter introduces the concept of “two-sided” markets and shows how they comprise a unique type of social media that facilitates the development of social networks oriented toward specific product domains (e.g., restaurants), specific brands (e.g., Starbucks), or common consumer concerns (e.g., Yelp.com). Not only do two-sided-markets constitute a unique type of Website, they can be integrated with or linked to other social media, thereby enriching the value of both the two-sided market and its partner(s). Because a two-sided market increases in value for all three parties that constitute it (consumers, the platform, and vendors) as the number of both vendors and consumer participants grows, platform managers are eager to use incentive strategies to encourage consumers to increase their active use of the site. Among these incentive strategies are various reward programs that stimulate use by rewarding consumers who add content, post reviews, comment on others’ reviews, and more. Part of this chapter describes two online experiments that demonstrate that two types of common reward programs, monetary and social rewards (Heyman & Ariely, 2004), are effective in stimulating consumer intent to use the site more actively than without a reward. Finally, we make several suggestions for integrating two-sided markets into other social media, and we propose several avenues for future research into this topic that should increase our understanding of how consumers behave in two-sided markets and how platform managers can both enhance active use and use the information derived from this use.
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Introduction

The purpose of this chapter is to present the concept of “two-sided” markets and to show how they can be integrated into the larger e-business framework formed by social media and social networks. Briefly, two-sided markets are online-platforms or websites that link sellers with buyers by enabling the former to promote their products (stores, services, etc.) to buyers who are enabled and encouraged to review, comment, and discuss these vendors on the site in the form of blogs or discussion groups. Thus, a two-sided market benefits all three partners (consumers, platform, and vendors) and can be seen as a type of social medium. We discuss how such websites can be integrated into existing social networks and how they can be managed as such. Moreover, we propose that websites created as two-sided markets can encourage consumers to become actively engaged in the exchanges by contributing to the site that form the core value of the website, by rewarding them to do so, and we present experimental evidence that such tactics would work.

The following sections of this chapter will achieve this purpose by first describing many of the prevalent types of social media and the social networks that they make possible. Two-sided markets are a type of social media, but since this concept ultimately is derived from the field of economics (Rochet & Tirole, 2003), social media are usually not described in this way. Next, we describe two-sided markets in more detail, explaining how they form a type of social network of users and vendors. This understanding lays the foundation for our subsequent discussion. Because the value and utility of two-sided markets are derived largely from the number of users and vendors who participate in them, we focus on ways in which managers of the platforms that are integral to the two-sided markets can entice active use of them. Then, we present evidence from two experimental studies showing that simple reward programs might be able to enhance user active participation in the web site, thus improving its satisfaction for users and increasing the value of the website for the vendors. We conclude with some ideas for integrating two-sided market into existing social media and some suggestions for future research into this important topic. We feel that two-sided markets are an important type of social medium that deserves to be studied.

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