Designing Effective Incentives for New Subscribers in Two-Sided Online Marketplaces

This study explores the impact of new member incentives on profitability in two-sided online marketplaces. With increasing competition, marketplaces often rely on promotions to attract new subscribers. However, the sustainability of these strategies remains uncertain. Using a game theory model, we analyze two types of incentives-fixed-amount discounts and percentage-based discounts-to determine their effects on marketplace profitability. Our results suggest that while both incentives can increase new membership, the long-term impact on profitability depends on how the incentives influence the balance between buyers and sellers. Marketplaces offering percentage-based discounts tend to attract more buyers but may experience diminishing returns if seller engagement does not increase correspondingly. The study contributes to the understanding of marketplace dynamics by highlighting the importance of balancing growth and profitability. These findings provide practical insights for marketplace managers in optimizing promotional strategies while maintaining financial sustainability.