First-Party Content and Coordination in Two-Sided Markets

Authors:
Andrei Hagiu;Daniel Spulber
Affiliations:
Harvard Business School, Harvard University, Boston, Massachusetts 02163;Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Venue:
Management Science
Year:
2013

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Abstract

The strategic use of first-party content by two-sided platforms is driven by two key factors: the nature of buyer and seller expectations favorable versus unfavorable and the nature of the relationship between first-party content and third-party content complements or substitutes. Platforms facing unfavorable expectations face an additional constraint: their prices and first-party content investment need to be such that low zero participation equilibria are eliminated. This additional constraint typically leads them to invest more less in first-party content relative to platforms facing favorable expectations when first-and third-party content are substitutes complements. These results hold with both simultaneous and sequential entry of the two sides. With two competing platforms---incumbent facing favorable expectations and entrant facing unfavorable expectations---and multi-homing on one side of the market, the incumbent always invests weakly more in first-party content relative to the case in which it is a monopolist. This paper was accepted by Bruno Cassiman, business strategy.