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Mechanism Design for Ad-Supported Platforms

Author

Listed:
  • Shota Ichihashi
  • Doh-Shin Jeon
  • Byung-Cheol Kim

Abstract

Many digital platforms earn revenue by selling content access and displaying ads. We study monopoly screening by a platform allocating heterogeneous content and ads to heterogeneous consumers. Advertising generates revenue and affects information rents through nuisance, which alters the platform's incentives to allocate content. The optimal mechanism balances a trade-off between advertising and rent extraction: Expanding content access increases advertising revenue but reduces sales revenue by raising information rents. The mechanism features novel distortions in content access and ad exposure, rationalizes contracts across ad-supported platforms, and explains why greater ad profitability may weaken incentives to invest in content quality.

Suggested Citation

  • Shota Ichihashi & Doh-Shin Jeon & Byung-Cheol Kim, 2026. "Mechanism Design for Ad-Supported Platforms," Papers 2609.12870, arXiv.org.
    • Handle: RePEc:arx:papers:2609.12870
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    File URL: https://arxiv.org/pdf/2609.12870
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