Mechanism Design and Innovation Incentive for an Ad-Funded Platform

Shota Ichihashi, Doh-Shin Jeon () and Byung-Cheol Kim
Additional contact information
Shota Ichihashi: QUB - Queen's University [Belfast]
Doh-Shin Jeon: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Byung-Cheol Kim: UA - University of Alabama [Tuscaloosa]

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Abstract: We study a mechanism design problem of a monopoly platform that matches content of varying quality, ads with dierent 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 protability reduces its incentive to invest in content quality.

Keywords: Ad-funded platform; Mechanism design; Matching; Innovation (search for similar items in EconPapers)
Date: 2025-02-18
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