Economics & Finance
Platform Matthew Effect Self-Reinforcement Loop
In two-sided markets, once a platform successfully attracts a critical mass of buyers, sellers face intensified competition that erodes average profits, forcing weaker sellers to exit. Their departure paradoxically strengthens the platform's appeal to dominant sellers, which in turn attracts more buyers—creating a positive feedback loop. The Matthew Effect (the rich get richer, the poor get poorer) thus operates automatically within the platform ecosystem without requiring active intervention from the platform itself.
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