An Equilibrium Model of User Generated Content

Abstract

This paper considers the joint creation and consumption of content on user generated content platforms (e.g., reviews or articles, chat, videos, etc.). On these platforms, users’ utilities depend upon the participation of others; hence, users’ expectations regarding the participation of others on the site becomes germane to their own involvement levels. Yet these beliefs are often assumed to be fixed. Accordingly, we develop a dynamic rational expectations equilibrium model of joint consumption and generation of information. We estimate the model on a novel data set from a large Internet forum site and use the model to offer recommendations regarding site strategy. Results indicate that beliefs play a major role in UGC, ignoring these beliefs leads to erroneous inferences about consumer behavior, and that these beliefs have an important implications for the marketing strategy of UGC sites.

We find that user and site generated content can be either strategic complements or substitutes depending on whether the competition for existing readers exceeds the potential to attract new ones. In our data, the competitive effect substantially dilutes the market expansion effect of site generated content. Likewise, past and current content can also be either strategic substitutes or complements. Results indicate more durable content increases overall site participation, suggesting that the site should invest in making past information easier to find (via better search or page design). Third, because content consumption and generation interact, it is unclear which factor dominates in network growth. We find that decreasing content consumption costs (perhaps by changing site design or via search tools) enhances site engagement more than decreasing content generating costs. Overall, enhancing content durability and reducing content consumption cost appear to be the most effective strategies for increasing site visitation.

JEL Classification: D7,D8, M1, M3