People

Customer reviews help communicate product information, but their effectiveness may suffer from selection bias (i.e., depending on factors, such as the individual experience and price, not all consumers may voluntarily write reviews). Consequently, a seller may have to resort to additional means (e.g., signaling through price in the context of an experience good) to convey its quality. This paper develops an analytical model to investigate the interaction of customer reviews and price with the presence of selection bias in marketing an experience good with uncertain quality to consumers. Our analysis reveals the dual roles played by both customer reviews and price in communicating quality information. On one hand, customer reviews may either directly convey product information with unbiased distribution of reviews or facilitate price signaling when reviews are biased because of selection. On the other hand, price may be adjusted to mitigate the selection bias of reviews to make them more informative, and it may also signal quality directly in the presence of review bias. As a result, we show that bias in reviews may actually benefit consumers without compromising information communication as the incentive to reduce review selection bias makes it credible and profitable for the high-quality seller to signal its type by undercutting the price that would be set if it is of low quality. We then extend our analysis to examine the information, profits, and welfare impacts of several important design elements of a review system as well as the impact of consumers’ aversion to risk. Finally, the implications of our findings on the management of user-generated content and pricing are discussed.

Media platforms generate revenue by bringing consumers and advertisers together. Although advertisers like to promote their services and products to consumers, consumers dislike advertisements to varying levels. Given heterogeneity in consumers’ dislike for ads, platforms could adopt either a uniform pricing strategy or a tiered pricing strategy for consumers. In this paper, we examine competing media platforms’ equilibrium pricing strategies in the presence of cross-side externalities between consumers and advertisers and their endogenous homing decisions. We find that symmetric platforms may adopt asymmetric pricing strategies in an attempt to focus on different sides of the market and soften interplatform competition if the incremental value that consumers derive from multihoming is large. However, they pursue only symmetric pricing strategies if this value is small. Counter to the intuition based on one-sided markets, our analysis shows that tiered pricing strategies need not improve the profits of platforms competing in a media market. In fact, when the incremental value that consumers derive from multihoming is large, competing platforms may earn lower profits from tiered pricing and yet pursue it (Prisoner’s dilemma). In contrast to standard results on tiered prices, we find that high-type consumers may not pay as much as their full willingness-to-pay for ad avoidance, implying that the incentive-compatibility constraint of high-type consumers may not be binding. Finally, we extend the model to allow for heterogeneous advertisers, vary the decision sequence, permit platforms to compete on ad capacity (rather than ad price), entertain an alternative formulation of transportation cost, and consider correlated advertising reach.

Publishers face an existential threat from a variety of news aggregators, such as free aggregators (e.g., Google News, Yahoo News), micropayment-facilitating aggregators (e.g., Blendle), and subscription-charging aggregators (e.g., Apple News+). The authors seek to theoretically examine whether publishers can collaborate and compete with the different types of news aggregators and, if so, what pricing and content-sharing strategies publishers should pursue. In the absence of a news aggregator, publishers sell their content as a composite publication; this intensifies interpublisher price competition and hurts publishers’ profits. A free aggregator, however, could help unbundle the articles of a publisher. Moreover, if publishers share articles on the same topic with a free aggregator, they can completely eliminate interpublisher competition and replace it with competition between the aggregator and the publishers, but they only partially eliminate interpublisher competition if they share articles on different topics with it. Yet, the free aggregator needs to bring sufficient additional traffic to the publishers to motivate them to share content and collaborate with it. Conversely, publishers will be willing to collaborate with a micropayment-facilitating aggregator even if it does not bring additional traffic to the publishers. This is because a micropayment-facilitating aggregator helps publishers unbundle their content and price discriminate. Lastly, publishers can be motivated to collaborate even with a subscription-charging aggregator that is powerful enough to dictate the terms of the revenue-sharing arrangement with the publishers. This is because the subscription-charging aggregator improves its profits without hurting the publishers’ surplus.

Companies that provide a two-sided platform for users to proactively seek a match face great challenges in increasing matching efficiency and ensuring match quality. This paper examines how information designs can be used to improve matching outcomes when users derive utility from a match's vertical attribute (i.e., quality) and its horizontal attribute (i.e., idiosyncratic fit). We consider a game-theoretic model in which competing senders propose matching requests to competing receivers and users on the two sides are differentiated both horizontally and vertically. We first demonstrate that users' preference for the vertical attribute intensifies competition and hurts matching efficiency, and to avoid competition a sender may switch from a close receiver to a distant receiver even when the weight that he places on a match's horizontal closeness increases. Second, we examine four information designs in which one type of information from one side of the market is withheld. Designs that withhold either side's vertical information increase the number of matches, with the improvement from withholding receivers' information being greater. By contrast, designs that withhold either side's horizontal information can cause all requests to concentrate on one receiver and lead to the most severe match failure. Third, an increase in matching volume comes at the expense of certain users' welfare, as withholding one side's vertical information can hurt not only high-quality users on both sides but also the low-quality users on the opposite side. Although withholding one side's horizontal information may increase the matching volume under certain conditions, it can be Pareto dominated by a design that withholds one side's vertical information. Fourth, when strategic user pricing is involved, it not only redistributes user welfare but also corrects for matching distortion. Finally, in contrast to the result when strategic pricing is absent, when strategic pricing is present the platform withholding one side's vertical information can benefit all users on the opposite side, while withholding one side's horizontal information can benefit all users on the same side.

Some media platforms earn their profits from both consumers and advertisers (e.g., Spotify, Hulu), whereas others earn their profits from either advertisers only (e.g., Jango, Tubi) or consumers only (e.g., Tidal, Netflix). Thus, media platforms adopt divergent strategies depending on how they allocate the limited space or bandwidth between content and advertising. In this paper, we examine media platforms’ content provision strategies and their implications for the profits of media platforms as well as content suppliers, taking into account the cross-side effects of a multisided media market and the nature of competition in the content supplier market. To facilitate the analysis, we propose a model where media platforms interact with three sides: content suppliers, consumers, and advertisers. First, our analysis of a perfectly competitive content market shows that though consumers’ desire for content raises the willingness to pay, it can hurt platforms’ profits. Second, counter to our intuition, platforms’ profits can increase with the cost of procuring content. Third, advertisers’ desire for consumers reduces a monopoly content supplier’s profits under a paid-content-with-ads strategy. Fourth, a monopoly content supplier cannot extract all the profits from competing platforms. Furthermore, competing content suppliers may even charge higher prices than a monopoly content supplier. Finally, we highlight how the nature of competition in the content market shapes platforms’ choice of a no-ad strategy.

Dr. Du is a marketing scholar interested in researching platform companies. Keen on learning new marketing trends, he looks forward to co-creating knowledge with his students.