Optimal Design of “Free” Content Provision for Online Platforms: Impacts of Advertising and Network Effects

30 Pages Posted: 18 Oct 2021

See all articles by Guofang Nan

Guofang Nan

Tianjin University; Tianjin University - College of Management and Economics

Shaobo Wu

affiliation not provided to SSRN

Zhiyong Li

State Key Laboratory of Media Convergence and Communication; School of Economics and Management, Communication University of China

Dahui Li

University of Minnesota - Duluth - Labovitz School of Business and Economics (LSBE)

Yong Tan

University of Washington - Michael G. Foster School of Business

Date Written: October 14, 2021

Abstract

The strategy of hybrid free trial has been adopted by online content platforms. This paper uses an analytical model to address a monopolistic platform’s optimal design of “free” content provision. We find that, given a fixed trial period, when the network effects are weak, offering an ad-sponsored free service is not typically optimal if the advertising rate is small; otherwise, the platform has incentives to provide free service without ads. Counterintuitively, a larger advertising rate does not always mean more ads should be offered when network effects are weak. When ads’ number is fixed, a trial period is desired if both the network effect strength and advertising rate are small. We also identify the threshold value of ads’ number, under which offering a trial period can be optimal even under relatively strong network effects if the advertising rate is moderate. The study advances our understanding of content provision strategy for platforms.

Keywords: hybrid trial; online content; content provision strategy; advertising; subscriptions

JEL Classification: M15

Suggested Citation

Nan, Guofang and Nan, Guofang and Wu, Shaobo and Li, Zhiyong and Li, Dahui and Tan, Yong, Optimal Design of “Free” Content Provision for Online Platforms: Impacts of Advertising and Network Effects (October 14, 2021). Available at SSRN: https://ssrn.com/abstract=3942199 or http://dx.doi.org/10.2139/ssrn.3942199

Guofang Nan (Contact Author)

Tianjin University - College of Management and Economics ( email )

NO.92 Weijin Road
Nankai District
Tianjin, 300072
China

Tianjin University ( email )

92, Weijin Road
Nankai District
Tianjin, Tianjin 300072
China

Shaobo Wu

affiliation not provided to SSRN

Zhiyong Li

State Key Laboratory of Media Convergence and Communication ( email )

No.1 Dingfuzhuang East Street Chaoyang District
Beijing, 100024
China

School of Economics and Management, Communication University of China ( email )

No.1 Dingfuzhuang East Street Chaoyang District
Beijing, 100024
China

Dahui Li

University of Minnesota - Duluth - Labovitz School of Business and Economics (LSBE) ( email )

412 Library Drive
Duluth, MN 55812-2496
United States

Yong Tan

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3226
United States

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