Mechanism Design and Innovation Incentive for an Ad-Funded Platform

Shota Ichihashi, Doh-Shin Jeon and Byung-Cheol Kim

No 19675, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study a mechanism design problem of a monopoly platform that matches content of varying quality, ads with different ad revenues, and consumers with heterogeneous tastes for content quality. The optimal mechanism balances revenue from advertising and revenue from selling access to content: Increasing advertising revenue requires serving content to more consumers, which may reduce access revenue. Contrary to the standard monopolistic screening, the platform may serve content to consumers with negative virtual values while, to reduce information rents, limiting their access to higher-quality content. Then, an increase in ad profitability reduces its incentive to invest in content quality.

JEL-codes: D42 D82 L15 O31 (search for similar items in EconPapers)
Date: 2024-11
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