Not as Good as it Used to Be: Do Streaming Platforms Penalize Quality?

40 Pages Posted: 23 Aug 2023

See all articles by Jacopo Gambato

Jacopo Gambato

ZEW – Leibniz Centre for European Economic Research; University of Mannheim

Luca Sandrini

ZEW – Leibniz Centre for European Economic Research; Budapest University of Technology and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2023

Abstract

We study the incentives of a streaming platform to bias consumption when products are vertically differentiated. The platform offers mixed bundles of content to monetize consumers’ interest in variety and pays royalties to sellers based on the effective consumption of the content they produce. When products are not vertically differentiated, the platform has no incentive to bias consumption in equilibrium: the platform being active represents a Pareto-improvement compared to the case in which she is not. With vertical differentiation, royalties can differ; the platform always biases recommendations in favor of the cheapest content, which hurts consumers and the high-quality seller. Biased recommendation always diminishes the incentives of a seller to increase the quality of her content for a given demand. If a significant share of the users is ex-ante unaware of the existence of the sellers the platform can bias recommendations more freely, but joining the platform encourages investment in quality. The bias, however, can lead to inefficient allocation of R&D efforts. From a policy perspective, we propose this as a novel rationale for regulating algorithmic recommendations in streaming platforms.

Keywords: platform economics, media economics, recommendation bias, innovation

JEL Classification: D4, L1, L5

Suggested Citation

Gambato, Jacopo and Sandrini, Luca, Not as Good as it Used to Be: Do Streaming Platforms Penalize Quality? ( 2023). ZEW - Centre for European Economic Research Discussion Paper No. 23-032, Available at SSRN: https://ssrn.com/abstract=4548230 or http://dx.doi.org/10.2139/ssrn.4548230

Jacopo Gambato (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Luca Sandrini

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Budapest University of Technology and Economics ( email )

Budafoki ut 8.
Budapest, 1111
Hungary

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