Between donors and beneficiaries: towards a theory of dynamic two-sided markets

Abstract

The non-profit sector has experienced significant changes and growth over the past few decades. Market failure theories aim to explain why traditional non-profit organisations (NPOs) exist but fall short in accounting for the diversity and complexity we observe in the third sector today. This article takes a first step in applying a two-sided market model to describe the evolution of the sector. It finds that purely donative NPOs may have once had the characteristics of a platform in a two-sided market featuring donors and beneficiaries linked by non-profit intermediaries. However, the transition of the sector from donative to one reliant on earned income requires an extension of the model of two-sided markets so that it has a less static approach. The demand and supply sides in the two-sided market model have become more complex. The article therefore suggests a dynamic model, in which consumers and financiers of NPO products and services can move from one side of the platform to the other and take on different and at times overlapping roles.