economic theory of two-sided markets

Two-sided markets involve platforms that connect two distinct groups, such as buyers and sellers, where each group's participation benefits the other. For example, a credit card company connects cardholders and merchants; more cardholders attract more merchants, and vice versa. The platform’s success depends on balancing the value and pricing for both sides to encourage participation. Network effects mean that increased users on one side make the platform more valuable for the other, creating a cycle that can rapidly grow the market. These markets require strategic pricing and incentives to foster healthy, sustainable interactions between both groups.