Back to Zopa Blog

A delicate balancing act

The discussion board has been busy since we announced the introdution of fees last week, and I thought it might be worth linking to a an Economist article that seemed relevant.

The article is about pricing decisions in two sided markets – of which Zopa is one. The problem arises when a company is trying to appeal to 2 sets of potential consumers, for example:

Microsoft, for instance, knows that everyone who buys its Xbox 360 adds to the console’s appeal to independent game publishers. The games these publishers conjure up then make the console more attractive to other customers. This makes Microsoft’s pricing decision tricky indeed. How much it charges one side of the market—people who play games—has a knock-on effect on demand on the other—people who develop them—which has, in turn, an indirect impact on the first side. This … is more difficult than “setting the price of toothpaste”.

We have a similar problem – if we only charge borrowers (our initial model) then we end up with unattractive rates for borrowers…and hence unattractive rates for lenders. If we only charge lenders, then we end up with unattractive rates for borrowers. You see the problem?

We don’t know for sure that we’ve got the right answer (Indeed the intensity of debate suggest we might well not have), but we might have to suck it and see. The Economist admits "Economists are still learning how two-sided businesses set their prices, and they still don’t know where the see-saw should settle." For once, I feel like an economist.