 Freemium competition among ad-sponsored platformsInformation Economics and Policy, 2020, vol. 50, issue C Abstract: This paper studies competition between ad-sponsored platforms that strategically determine business models. In addition to basic services including annoying advertisements, each platform decides whether to introduce an ad-free premium service (i.e., a freemium business model). Freemium platforms encounter a trade-off between increasing the number of premium users for the subscription-based revenues and increasing the number of basic users for the ad-sponsored revenues. I characterize how the freemium platforms should segment their users into basic and premium services. Moreover, I show that the equilibrium business model choice depends on the extent of fixed costs for introducing a premium service. When the fixed cost is at an intermediate level, asymmetric equilibria may arise: i.e., only one platform introduces the premium service. Competing platforms may have an incentive to coordinate their choices toward asymmetric market structures; however, these structures can be harmful to both consumers and advertisers. Keywords: Freemium; Two-sided markets; Indirect network externalities; Advertising (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:50:y:2020:i:c:s016762451930006x DOI: 10.1016/j.infoecopol.2019.100848 Access Statistics for this article Information Economics and Policy is currently edited by D. Waterman More articles in Information Economics and Policy from Elsevier |
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