Customer Revenue Sharing Program in Online Social Media

25 Pages Posted: 29 Feb 2012 Last revised: 22 Jun 2014

See all articles by Fouad H. Mirzaei

Fouad H. Mirzaei

University of Western Ontario - Richard Ivey School of Business

Fredrik Odegaard

Ivey Business School, Western University

Xinghao Yan

University of Western Ontario - Richard Ivey School of Business

Date Written: January 1, 2012

Abstract

Online social media (OSMs) have become a popular and growing phenomenon on the Internet, as exemplified by the millions of followers of websites like YouTube, Twitter and Facebook. Given the ease of access and high competition over the Internet to attract users, a question that arises is whether OSMs should develop revenue sharing programs and reward their contributing users. Aiming to expand market share and boost revenue, some OSMs recently have realized the influence of these programs in changing the outcome of their online competition. We model this competition by a duopoly game where users are either active or passive with respect to each OSM. We assume the OSMs are generally asymmetric, in that online users have a general preference for one. The game includes two steps: first, the OSMs simultaneously announce their rewards for active users, and second, users choose their level of contribution with respect to each OSM based on their preference. We show this game has a unique Nash equilibrium in pure strategies and specify how OSMs can derive the optimal reward payments. Our results include that, at equilibrium, no user will choose to contribute content exclusively to the less attractive OSM. In addition, we find that the more favourable OSM always receives a higher profit, even when it shares a lower reward. Based on numerical analysis, in most cases, the more favourable OSM shares a higher (lower) reward than the less favourable one, when the impact of active users’ contribution on OSMs revenue is small (high). Furthermore, we identify the conditions under which symmetric equilibrium exists despite the asymmetry between the OSMs.

Suggested Citation

H. Mirzaei, Fouad and Odegaard, Fredrik and Yan, Xinghao, Customer Revenue Sharing Program in Online Social Media (January 1, 2012). Available at SSRN: https://ssrn.com/abstract=2013580 or http://dx.doi.org/10.2139/ssrn.2013580

Fouad H. Mirzaei (Contact Author)

University of Western Ontario - Richard Ivey School of Business ( email )

1151 Richmond Street North
London, Ontario N6A 3K7
Canada

Fredrik Odegaard

Ivey Business School, Western University ( email )

Ivey Business School
1255 Western Road
London, Ontario N6G 0N1
Canada

Xinghao Yan

University of Western Ontario - Richard Ivey School of Business ( email )

1151 Richmond Street North
London, Ontario N6A 3K7
Canada

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