Economics of dating platforms

This post is about some special aspects on the economics around dating platforms. I will discuss how price discrimination can benefit everyone, the rare phenomenon of increasing marginal returns and how incentives might make dating platforms choose to be bad at matching people with each other.

Single people use dating services (such as Tinder, Grindr, match.com among many many others) to find a partner. When they find a good match they will be off the market and stop using the platform. In other words, people use dating apps in order to find a reason to stop using them. The issue for these dating platforms is that it’s not easy to get paid for matching people with potential partners. This being said, they can’t just straight copy a business model from other companies who provide similar matching services such as matching companies to potential employees; or for another example, matching residents with housing. Different dating services use distinctive models to bring in revenue. They might charge the user to be able to use the service, have ads on the platform or allow people to use some simpler version of the app for free and then offer a premium service costing money.

It’s important to notice that a company that wants to maximize it’s profits is not necessarily a company that seeks to provide the best matchmaking service. If the company gets their revenues from ads on the platform then they want as many users as possible, not matching as many people as possible who will then leave the platform. At the same time, if the platform doesn’t manage to match any new couples, people will leave for the same reason (given that they are informed of this). So the optimal matching-strategy for the company will be different depending on what their income scheme looks like. So, if you are not paying for a service you are using, that gives you a hint that you are not the customer in their business, you are the good that they are selling. This is not to say you are being fooled, it might still be a great app if the incentives for the company are good.

Giving people access to a simple version of the app and then offer a premium version with additional features is a kind of price discrimination. The price difference obviously can’t be explained by difference in production costs, it is a way to separate out those who are willing to pay more from those who are not. If the company only had the best version of their dating platform, and charging everyone the same price, not as many people would use the app. It is therefore better for them (as in giving them more revenue) to try and filter out those willing to spend money on the dating service by offering a premium service. The free riders get to use the platform they otherwise would choose not to use so they are winners too under this model. The premium members are better off too since there are more people using the platform than before, making it a better app for finding a date. A win-win-win situation in other words.

A second aspect of dating platforms that is a bit special derives from the fact I just mentioned above. That the value of the dating service increases with the number of users. The individual user will be willing to pay more to use the app the more people are on the platform. This influences what kind of income scheme the company chooses to go with, this is why most dating services offer some free features, to get as much people to use the platform as possible. In economics jargon this concept is called increasing marginal returns. In our digital age this is becoming a more and more common phenomenon. The strength of social media platforms such as facebook, snapchat and instagram comes from the fact that so many people are using them. This changes some of the dynamics of the economy. If you succeed in getting users to your platform, you will win big time. But it’s also a lot more difficult for outsiders to compete with these giants, since only the very best get all the customers. Their monopolistic situation is however fragile, and big companies might have difficulties readjusting when circumstances change (see companies like Nokia, Microsoft and Zodac). Something small entrepreneurs can take advantage of in order to become the new king of the hill.

Dating platforms differ in interesting ways from other kind of services that people use. By thinking of what incentives motivate the actions of these companies helps us understand the reasons for their success and the mechanisms of the economy. Thanks for reading, if you have any comments, questions or other feedback, please let me know!

Big thanks to Collin Peeples for great feedback

Employment for Pokemons

A while back I wrote a longer piece on how to design a market system within the game Pokemon Go, and what aspects that I think will determine what the effects will be when the update comes. In this second blog post about economics related to the game I discuss how society in pokemon universe would be like. And what could be an awesome way to development the game further!

Let’s imagine living in a world with pokemons, very intelligent animal-like creatures with sort of super power. It does not appear to me why having them fighting each other would be such a huge thing in this world as the pokemon games make it appear. Sure there are humans forcing animals fight each other for our entertainment in our society too. But one can hardly claim it’s a big thing in the developed parts of the world. Since pokemons are intelligent enough to understand human spoken language and express emotions I doubt the practice of having pokemons fight to exhaustion or death wouldn’t engage movements fighting for pokemon rights.

From an economic standpoint there is a lot to gain from trade with pokemons, trade defined as voluntary transactions from both parties. Or if the enslavement would persist: having them do more productive tasks. The pokemons might lack the intelligence to comprehend the concept of trade, like most animals in our world. In any case, there might not be any moral reason to treat pokemons differently than we treat other animals, as property.

We see in the pokemon movies and tv-series that there actually are a lot of work that can be done by pokemons. For example there are pokemons who work as nurses in hospitals, assists with transportation services and deliver mail. Since a lot of pokemons possess supernatural abilities such as being able to create fire, electricity or poison etc. there is in fact big gains in employing pokemons to stuff that humans can’t do or do at a high cost.

Perhaps my observation sounds obvious, so let’s go into how employment for pokemons could create an interesting dynamic element in Pokemon GO. In the game there are places called Pokestops where players can receive free items such as pokemon balls and medicines. Instead of giving out these items for free, imagine these depots instead offered players quests to complete in exchange for items. Perhaps at a poke stop, the player meets a human asking for help with a task, say, building a wall or fishing for food. The player can then lend one of it’s pokemons to the person in need for an amount of time. Building a wall or carrying heavy thing might call for a strong pokemon while for fishing you might want to employ a water pokemon. Depending on how skilled and fitted for the task the pokemon is, the player is paid accordingly.

This would give players a reason to gather good pokemons of different elements and with different abilities. As the game looks today, the only reason to gather strong pokemons is to build a strong compating team, and for that task there really is only a handful of pokemons that are really valuable. I would say this is a fairly simple element that would make the game more dynamic and interesting for the players. Hopefully some game developer from niantic sees this post and makes it reality.