The Economics of Tinder
Historically, dating involved individuals continuously meeting with the aim of finding a suitable marriage partner. It was an unquestioned activity that brought connections to many in a social climate where monogamy is the norm. The search for our ideal “one person” is arguably fully motivated by the stability it represents, with the emotional intimacy shared between two individuals. I’m arguing that dating has always been promoted because monogamy is profitable. Taking people out on dates, buying your significant other gifts, and grooming yourself to look good enough to be a prospective partner for dates all involve money.
As early as 1995, Match.com saw a gap in the monogamy market and launched an online dating service. They charged $9.95 for a monthly membership or $60 for a year. Since then, it has grown to $2,141 million in 2020, higher than the conventional “casual dating” industry worth $884.3 million.
With more than 38 dating apps in the global market, it implies that it is a perfectly competitive industry. Individual apps have limited control over prices because the other apps essentially offer services that serve an identical purpose. The perfectly competitive industry gives firms very little market power, making them price-takers with a perfectly elastic demand curve that is equal to the market price. Price-takers are essentially defined as buyers or sellers that have to accept prices given market conditions of many buyers and many sellers. The availability of a large number of dating apps makes demand more price elastic due to the large number of substitutes. If the apps charge more, users can find an alternative app. There is also a large number of buyers due to high demand for the functions that dating apps serve, including romantic relationships, friendly contact, and sexual relationships. For example, 5% of Australia’s population is currently using Tinder, and 30% of U.S. internet users aged 18–29 were on dating apps, showing a large number of buyers in the market.
Entry into the industry is easy due to low barriers of entry. The startup cost to make an online dating app is $50,000. Once entered, firms that prefer to shut down in the long run may stay in the short run as the startup costs of $50,000 have become sunk costs. In addition, there is a lack of barriers to entry, as evidenced by an instantaneous decrease in market share of Match, which owns Tinder and Match, by 22% after Facebook announces plans for a new dating feature. This ultimately means a decrease in market power. In the long run, the dating app industry will have a number of apps exiting and entering, but in the short run, the number of apps in the market is fixed. This is due to incumbent apps like Match Group, which owns Tinder and OkCupid, earning profits of $46.6 million, incentivizing entry.
Furthermore, demand-side factors shift the demand curve outwards. It can easily be argued that economic factors of today, like lower wages and higher competition in the workplace, have delayed the first marriage age of consumers participating in the online dating economy. This has increased the demand for one of the app’s functions, which is looking for romantic relationships, shifting the demand curve outwards. Another possible reason for an outward demand shift is the rise in casual attitudes towards premarital sex, which also contributes to one of the functions 24% of U.S. singles use dating apps for.
This leads to a rise in price, as characterized by Tinder’s introduction of in-app purchases, such as Tinder Plus, which costs $5. In the short run, profits are earned as Tinder’s new price is about the average total costs. If profits induce entry in the long run, it shifts market supply outward. In the long run, as more apps enter the industry, prices fall, and there is zero profit for the last app that enters. This hasn’t occurred in the industry yet, as the industry reportedly generates $2 billion per year. If Facebook’s new dating app has the same cost structure, prices will fall back into the same cost structure, implying that supply in the long run industry is perfectly elastic.
The industry operates by exploiting the need for emotional intimacy individuals seek. Profiles are created using curated images that highlight their most attractive physical features. Tinder dominates the dating app market with its unique selling point being the swiping function. In other words, people become their own economic agents, bartering their wants and needs. Dating online is merely a transaction of keeping a conversation to exchange interests. Factors like education and conventional attractiveness add to someone’s “dating value.” Contrary to popular belief, it is not simply a “meat market” for casual sex. Gizmodo reported that Tinder users aren’t having more sex than non-users. There is no evidence that the number of casual sex encounters is increasing through dating apps relative to individuals who have never tried dating apps.
This industry operates under the underlying assumption that users are looking for intimacy, specifically of the romantic or physical variety. If there were a scenario where there was a rise in taboo attitudes towards casual sex, the biggest issue is that when the apps work and people find partners, they stop using the service. However, successful relationships are inhibited by endless possibilities. If one match is deemed unsuitable, there are numerous options to invest time and energy into. This blurs the traditional meaning of dating an individual with the objective to commit. As opposed to physically calling upon a suitor, dating has evolved to be accessible at your fingertips. Hence, there is an oversupply of relationships readily available for anyone seeking different types of intimacy, provided they have adequate dating value. As a result, dating apps must be adept at acquiring new customers more quickly than the app users find partners. If not, demand is decreasing at a faster rate than the apps in the industry can provide the services. In the short run, if demand decreases and apps are generating negative profits, apps that are producing enough to cover average variable costs will continue producing. In the long run, apps that are generating enough to cover average total costs will continue producing, while those that have lost their average variable costs will exit the industry.
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