Platform pricing is how a platform sets charges across the groups it serves, deciding who pays, how much and for what. Because each group’s demand depends on the others, one side is often charged little or nothing.
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Types of platform pricing
- Membership fees: a fixed charge to join or stay, such as a subscription.
- Transaction fees: a charge or percentage on each sale, booking or use.
- Two-part pricing: a mix of both, such as a monthly plan plus a fee on each order.
Key factors
- Who to subsidise. Charge least to the side that attracts the other most and is most sensitive to price. Charge more to the side most willing to pay.
- Zero as a floor. Paying people to join tends to attract those with no interest in using the platform, so free is usually the lowest practical price.
- When the split matters. Whether to charge for joining or for each use matters most when the fee changes how much people use the platform.
- The underlying economics. Subsidies cannot fix a service whose costs exceed what customers will pay.
Examples
Uber. For years Uber spent heavily to attract both riders and drivers and lost billions of dollars a year. As it raised fares and cut incentives, it reported its first full-year operating profit, about $1.1 billion, for 2023. Subsidies built the network, but they could not run it indefinitely.
Netflix. Netflix launched a cheaper plan with adverts in November 2022, turning a one-sided subscription service into a two-sided one that also sells to advertisers. By late 2024 it said the ad plan reached 70 million monthly active users. The lower price for viewers is paid for partly by the new side.
Frequently asked questions
What is the difference between price level and price structure?
Price level is the total a platform charges. Price structure is how that total is split between the sides. On platforms the structure often matters more than the level.
Why do some platforms give their service away for free?
Free access builds the audience or supply that the paying side wants. The platform earns from that side instead, for example advertisers, sellers or premium users.
How do platforms decide which side pays?
They compare how much each side attracts the other and how sensitive each is to price. The side that draws the other in but would leave if charged usually pays least.
Can platform pricing be anticompetitive?
It can. Below-cost prices aimed at driving out rivals, or rules stopping sellers offering lower prices elsewhere, have drawn action from competition authorities in the EU, UK and US.