125 / 2024-04-21 13:00:57

Strategic Analysis of an Ad-sponsored Content Platform’s Subsidy Policy: The Perspective of the Provider’s Pricing Strategies

pricing,content platform,content subsidy policy,behavior economics

We consider a content supply chain with an ad-sponsored content platform and a representative provider in the presence of altruistic consumers. The platform may launch different subsidy policies (i.e., a monetary subsidy that directly improves marginal profit or a traffic subsidy that directly improves content quality), and the provider creates content under two pricing strategies (i.e., a fixed pricing strategy and a pay-as-you-wish strategy). We develop a stylized content-based supply chain model and investigate which subsidy policy is a better choice for the platform when the provider is delegated pricing power. Under a fixed pricing strategy, the platform prefers the traffic subsidy policy if the consumers’ basic utility is not too low or the cost effect is weak, while the provider prefers the traffic subsidy when consumers’ basic utility is high or the cost effect is weak. Under the pay-as-you-wish strategy, the content platform always prefers the traffic subsidy policy, while the provider prefers the traffic subsidy policy when the consumers’ basic utility for content is high. Due to the tradeoff between the subsidy enhancement effect on quality and the cost effect, we observe that although the traffic subsidy policy brings a higher content quality than the monetary subsidy policy under both pricing strategies, the provider can increase or decrease his content quality in the traffic subsidy policy compared with the monetary subsidy policy. Our paper provides guidance on how content platforms can provide the right subsidy policy to providers.