Marketplace Quote by Andrew McAfee
““Pricing strategies for two-sided networks can be aggressive and seemingly nonsensical if you don’t understand their peculiar economics. In particular, changes in the quantity demanded on one side of the network can affect demand on the other side of the network...Lowering the price on one side of the network increases demand on both sides of the network, creating an extra benefit for each price cut.””
About This Quote
Source Book: Platform Revolution by Geoffrey G. Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary, 2016
In two‑sided markets, lowering price for one group boosts participation on both sides, creating a positive feedback loop that can outweigh the loss from the discount.
In simple terms: Cheaper for one side draws more users on both sides.
Key Takeaway
Use strategic subsidies to grow network value.
Themes
economics
network effects
pricing strategy
Mood
analytical
strategic
Type
business
educational
When to use this quote
- launching a new marketplace
- expanding a platform
- adjusting subscription tiers
- entering a gig economy
- setting freemium models
Key Concepts
two‑sided markets
cross‑side externalities
price elasticity
Questions to Reflect On
- How can you identify the optimal subsidy level?
- What risks arise if one side becomes overly dependent on discounts?
A Different Perspective
If the subsidized side is already saturated, price cuts may not generate enough extra demand to justify revenue loss.
