IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v72y2026i3p2380-2397.html

Monetizing Platforms: An Empirical Analysis of Supply and Demand Responses to Entry Costs in Two-Sided Markets

Author

Listed:
  • Kai Zhu

    (Bocconi University, 20136 Milan, Italy)

  • Qiaoni Shi

    (Bocconi University, 20136 Milan, Italy)

  • Shrabastee Banerjee

    (Tilburg University, 5037AB Tilburg, Netherlands)

Abstract

This study investigates the consequences of monetizing a marketplace for product promotion within a digital platform, specifically the Giveaways program on Goodreads.com. Using a natural experiment and fine-grained platform data from 2016 to 2020, we examine how introducing a fixed entry cost for content creators affected both supply and demand in this two-sided market. Our findings reveal significant shifts in marketplace dynamics after monetization: (1) a substantial decrease in overall program participation, particularly among indie publishers and self-published authors, leading to increased market concentration; (2) reduced genre diversity, with popular genres becoming more dominant at the expense of niche categories; and (3) intensified promotional effects, characterized by higher review volume but lower average ratings for participating books. Analysis of review text suggests an increase in consumer-book mismatches as a potential mechanism driving this outcome. Our study advances platform economics by demonstrating how entry costs reshape marketplace composition and affect value creation in two-sided markets. These findings inform platform design and policy, particularly for markets with horizontally differentiated products and heterogeneous consumer preferences.

Suggested Citation

  • Kai Zhu & Qiaoni Shi & Shrabastee Banerjee, 2026. "Monetizing Platforms: An Empirical Analysis of Supply and Demand Responses to Entry Costs in Two-Sided Markets," Management Science, INFORMS, vol. 72(3), pages 2380-2397, March.
    • Handle: RePEc:inm:ormnsc:v:72:y:2026:i:3:p:2380-2397
    DOI: 10.1287/mnsc.2023.01390
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2023.01390
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2023.01390?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Erik Brynjolfsson & Yu (Jeffrey) Hu & Michael D. Smith, 2003. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," Management Science, INFORMS, vol. 49(11), pages 1580-1596, November.
    2. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-1672, September.
    3. Anindya Ghose & Panagiotis G. Ipeirotis & Beibei Li, 2014. "Examining the Impact of Ranking on Consumer Behavior and Search Engine Revenue," Management Science, INFORMS, vol. 60(7), pages 1632-1654, July.
    4. Waldfogel, Joel, 2003. "Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated-Product Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 557-568, Autumn.
    5. Joost Rietveld & Melissa A. Schilling & Cristiano Bellavitis, 2019. "Platform Strategy: Managing Ecosystem Value Through Selective Promotion of Complements," Organization Science, INFORMS, vol. 30(6), pages 1232-1251, November.
    6. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    7. Daniel Fleder & Kartik Hosanagar, 2009. "Blockbuster Culture's Next Rise or Fall: The Impact of Recommender Systems on Sales Diversity," Management Science, INFORMS, vol. 55(5), pages 697-712, May.
    8. Andrei Hagiu, 2009. "Two‐Sided Platforms: Product Variety and Pricing Structures," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1011-1043, December.
    9. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    10. Zhijie Lin & Ying Zhang & Yong Tan, 2019. "An Empirical Study of Free Product Sampling and Rating Bias," Service Science, INFORMS, vol. 30(1), pages 260-275, March.
    11. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
    12. Jūra Liaukonytė & Anna Tuchman & Xinrong Zhu, 2023. "Frontiers: Spilling the Beans on Political Consumerism: Do Social Media Boycotts and Buycotts Translate to Real Sales Impact?," Marketing Science, INFORMS, vol. 42(1), pages 11-25, January.
    13. Jaeung Sim & Daegon Cho & Youngdeok Hwang & Rahul Telang, 2022. "Frontiers: Virus Shook the Streaming Star: Estimating the COVID-19 Impact on Music Consumption," Marketing Science, INFORMS, vol. 41(1), pages 19-32, January.
    14. Yanhui Wu & Feng Zhu, 2022. "Competition, Contracts, and Creativity: Evidence from Novel Writing in a Platform Market," Management Science, INFORMS, vol. 68(12), pages 8613-8634, December.
    15. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    16. Dandan Qiao & Shun-Yang Lee & Andrew B. Whinston & Qiang Wei, 2020. "Financial Incentives Dampen Altruism in Online Prosocial Contributions: A Study of Online Reviews," Information Systems Research, INFORMS, vol. 31(4), pages 1361-1375, December.
    17. Luis Aguiar & Joel Waldfogel, 2018. "Quality Predictability and the Welfare Benefits from New Products: Evidence from the Digitization of Recorded Music," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 492-524.
    18. Jingchuan Pu & Young Kwark & Sang Pil Han & Qiang Ye & Bin Gu, 2024. "Uncertainty Reduction vs. Reciprocity: Understanding the Effect of a Platform-Initiated Reviewer Incentive Program on Regular Ratings," Information Systems Research, INFORMS, vol. 35(3), pages 1363-1381, September.
    19. Luis Aguiar & Joel Waldfogel, 2021. "Platforms, Power, and Promotion: Evidence from Spotify Playlists," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 653-691, September.
    20. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-414, May.
    21. Hemant K. Bhargava & Kitty Wang & Xingyue (Luna) Zhang, 2022. "Fending Off Critics of Platform Power with Differential Revenue Sharing: Doing Well by Doing Good?," Management Science, INFORMS, vol. 68(11), pages 8249-8260, November.
    22. Banerjee, Shrabastee & Dellacros, Chrysantos & Zervas, Georgios, 2021. "Interacting user-generated content technologies: How questions & answers affect consumer reviews," Other publications TiSEM 8666065b-00ff-4352-b458-1, Tilburg University, School of Economics and Management.
    23. Panos Constantinides & Ola Henfridsson & Geoffrey G. Parker, 2018. "Introduction—Platforms and Infrastructures in the Digital Age," Information Systems Research, INFORMS, vol. 29(2), pages 381-400, June.
    24. Joel Waldfogel, 2017. "How Digitization Has Created a Golden Age of Music, Movies, Books, and Television," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 195-214, Summer.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jin Li & Gary Pisano & Yejia Xu & Feng Zhu, 2023. "Marketplace Scalability and Strategic Use of Platform Investment," Management Science, INFORMS, vol. 69(7), pages 3958-3975, July.
    2. Alagöz, Nazli, 2024. "Promotion and technological change in the music industry," Other publications TiSEM 511ceba0-62a0-4c60-a76c-f, Tilburg University, School of Economics and Management.
    3. Zennyo, Yusuke, 2024. "A model of mobile app and ad platform markets," International Journal of Industrial Organization, Elsevier, vol. 97(C).
    4. Lena Abou El-Komboz & Anna Kerkhof & Johannes Loh, 2023. "Platform Partnership Programs and Content Supply: Evidence from the YouTube “Adpocalypse”," CESifo Working Paper Series 10363, CESifo.
    5. Andrei Hagiu, 2004. "Two-Sided Platforms: Pricing and Social Efficiency," Discussion papers 04035, Research Institute of Economy, Trade and Industry (RIETI).
    6. Thomas W. Quan & Kevin R. Williams, 2016. "Product Variety, Across-Market Demand Heterogeneity, and the Value of Online Retail," Cowles Foundation Discussion Papers 2054, Cowles Foundation for Research in Economics, Yale University.
    7. Justus Haucap & Torben Stühmeier, 2016. "Competition and antitrust in Internet markets," Chapters, in: Johannes M. Bauer & Michael Latzer (ed.), Handbook on the Economics of the Internet, chapter 9, pages 183-210, Edward Elgar Publishing.
    8. Jeon, Doh-Shin & Jullien, Bruno & Klimenko, Mikhail, 2021. "Language, internet and platform competition," Journal of International Economics, Elsevier, vol. 131(C).
    9. Luis Aguiar & Imke Reimers & Joel Waldfogel, 2024. "Platforms and the transformation of the content industries," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 33(2), pages 317-326, March.
    10. Hui Li & Qiaowei Shen & Yakov Bart, 2021. "Dynamic Resource Allocation on Multi-Category Two-Sided Platforms," Management Science, INFORMS, vol. 67(2), pages 984-1003, February.
    11. Amelia Fletcher & Peter L Ormosi & Rahul Savani, 2023. "Recommender Systems and Supplier Competition on Platforms," Journal of Competition Law and Economics, Oxford University Press, vol. 19(3), pages 397-426.
    12. John Pang & Weixuan Lin & Hu Fu & Jack Kleeman & Eilyan Bitar & Adam Wierman, 2022. "Transparency and Control in Platforms for Networked Markets," Operations Research, INFORMS, vol. 70(3), pages 1665-1690, May.
    13. Jørgen Veisdal, 2020. "The dynamics of entry for digital platforms in two-sided markets: a multi-case study," Electronic Markets, Springer;IIM University of St. Gallen, vol. 30(3), pages 539-556, September.
    14. Jun Li & Serguei Netessine, 2020. "Higher Market Thickness Reduces Matching Rate in Online Platforms: Evidence from a Quasiexperiment," Management Science, INFORMS, vol. 66(1), pages 271-289, January.
    15. Volker Nocke & Martin Peitz & Konrad Stahl, 2007. "Platform Ownership," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1130-1160, December.
    16. Yonghong Sun, 2020. "Optimal service versioning for dating platforms," Information Technology and Management, Springer, vol. 21(4), pages 217-226, December.
    17. Quitz'e Valenzuela-Stookey, 2020. "Platform-Mediated Competition," Papers 2011.03879, arXiv.org.
    18. Thomas W. Quan & Kevin R. Williams, 2017. "Product Variety, Across-Market Demand Heterogeneity, and the Value of Online Retail," Cowles Foundation Discussion Papers 2054R3, Cowles Foundation for Research in Economics, Yale University, revised Jun 2018.
    19. Sokullu, Senay, 2023. "More Is Better, Or Not? An Empirical Analysis of Buyer Preferences for Variety on the E-Market," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 450-470.
    20. Martin Poniatowski & Hedda Lüttenberg & Daniel Beverungen & Dennis Kundisch, 2022. "Three layers of abstraction: a conceptual framework for theorizing digital multi-sided platforms," Information Systems and e-Business Management, Springer, vol. 20(2), pages 257-283, June.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:72:y:2026:i:3:p:2380-2397. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.