Prioritization vs. Neutrality on Platforms: Evidence from Amazon’s Twitch.tv

Abstract

This paper studies the efficient use of prioritization in Amazon’s Twitch.tv, taking into account the trade-off between entry and congestion. I specify and estimate supply and demand models for live video, and a congestion model. Using technological shocks, I identify congestion costs for content providers and their consumers. Using shocks in prioritization, I identify its benefits. With estimated preferences and technological parameters, I construct counterfactuals. Without congestion, demand potentially doubles. A supply-side Pigouvian tax is preferred to a demand-side one. Without prioritization, consumer welfare drops up to 10%. I consider a rent-extractive platform, and discuss parallels with net-neutrality policy.

Keywords: Prioritization, Congestion externalities, Internet platforms, Media, Two-sided markets, Net neutrality

JEL Classification: D22, D62, L13, L14, L82, L96