Economics of Digital Media Firms: Models and Perspectives

Abstract

In this paper, we provide a theoretical framework for three models of Digital Media Firm behavior called Premium, Free-to-Play, and Play-to-Earn. First, we study a baseline model of optimal price and quality of a digital product, the premium model. Second, we extend the baseline model where some customers, called minnows, receive the product for free and other customers, called whales, pay a price for a better version of the product, this is the free-to-play model. Finally, we explore a model where customers receive a security-like asset from the firm and this asset acts like a negative price while also subsidizing the firm’s revenue.

Keywords: Economics, Game Theory, Industrial Organization, Asset Prices

JEL Classification: D21, D47, C79