The three keys to answering this question are density, appropriately balanced demand and supply and category concentration.

If in a given week Tinder acquires 1,000 female participants in Chicago and 1,000 male participants in New York, Tinder’s number of total users increases, but its liquidity remains the same.

This distance threshold (“r” in the visual below) is different for every marketplace and you will identify it by understanding how far your customers are willing to travel to complete their transaction.

For example, a seller at Letgo might not be willing to travel 30 minutes to sell a used skateboard for $30, but a babysitter at Care.com will likely travel 30 minutes to make $150 for a day of babysitting.

You start by optimizing your marketing strategy to achieve the highest customer acquisition within the established distance threshold.

If a marketplace doesn’t have the right number of buyers per listing, or the right number of items listed per buyer, transactions will go unfilled.

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