Jeon, Doh-Shin, Ichihashi, Shota and Kim, Byung-Cheol (2024) Mechanism Design and Innovation Incentive for an Ad-Funded Platform. TSE Working Paper, n. 24-1591, Toulouse

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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.