More buyers or more sellers: on marketing resource allocation strategies of competing two-sided platforms

Abstract

Two-sided platforms enable and supplement transactions between buyers and sellers. We consider a decision problem facing two such platform firms competing in a market. Each firm needs to divide its budget of a planning period between promotion towards attracting new sellers and new buyers. We propose a generalized Nash equilibrium problem (GNEP) model to find optimal allocations. The GNEP approach provides an eloquent framework for analysis and theory development. An intuitive result from the interpretation of optimality conditions is that a firm’s focus should be higher towards the group whose presence is less on the platform. This focus can shift depending on competitors’ ability to dissuade new customers. Interestingly, the model recommends that a firm should focus on getting new sellers when its customer-focused promotion adversely impacts competitors’ customer acquisition. Predatory promotion strategy adversely affects both. More useful implications can be drawn from the equilibrium analysis. We have assumed that a limited number of sellers are available in the market, whereas no restrictions are imposed on new customer acquisitions. This situation is typical during the entry phase of a two-sided platform.