Two-Sided Price Discrimination by Media Platforms

55 Pages Posted: 10 Nov 2018 Last revised: 21 May 2019

See all articles by Song Lin

Song Lin

Hong Kong University of Science & Technology (HKUST) - Department of Marketing

Date Written: May 20, 2019

Abstract

An increasingly common practice among media platforms is to provide premium content versions with fewer or even no ads. This practice leads to an intriguing question: how should ad-financed media price discriminate through versioning? I develop a two-sided media model and illustrate that price discrimination on one side can strengthen the incentive to discriminate on the other. Under this self-reinforcing mechanism, the ad allocations across different consumer types depend crucially on how much nuisance of an ad "costs" consumers relative to the value it brings to them. Interestingly, higher-type consumers, who value content and advertising quality highly, may see more ads than lower-type consumers if the nuisance cost is relatively low. Furthermore, the standard downward quality distortion generally fails to materialize in a two-sided market and may even be reversed: higher-type consumers may be exposed to too few ads that result in a lower total quality than the socially efficient level, whereas lower-type consumers may receive a socially excessive quality. The circumstances under which the self-reinforcing mechanism may be weakened and the implications for media platform design are explored.

Keywords: Price discrimination, two-sided market, platform design, media pricing, advertising, ad avoidance, targeting

JEL Classification: M3, D4, L1

Suggested Citation

Lin, Song, Two-Sided Price Discrimination by Media Platforms (May 20, 2019). Available at SSRN: https://ssrn.com/abstract=3218909 or http://dx.doi.org/10.2139/ssrn.3218909

Song Lin (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Marketing ( email )

LSK 4005, HKUST Business School
Clear Water Bay
Hong Kong, Hong Kong, China na
Hong Kong
Clear Water Bay (Fax)

HOME PAGE: http://www.bm.ust.hk/mark/staff/song_lin.html

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
110
Abstract Views
498
rank
260,060
PlumX Metrics