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Digital Business Models and Quality Investment

Author

Listed:
  • Marie-Laure Allain

    (CREST, CNRS, Institut Polytechnique de Paris, France)

  • Marc Bourreau

    (Telecom Paris, Institut Polytechnique de Paris, CREST, and CESifo, France)

  • Pierre-Francois Darlas

    (Telecom Paris, Institut Polytechnique de Paris, CREST, France)

Abstract

In this paper, we study the competition between two horizontally di erentiated digital platforms. Each platform can adopt either a user-funded or an ad-funded business model. The platforms also invest in service quality to attract users. We nd that which business model is more conducive to quality investment depends on the relative value of the platforms services to the marginal multi-homing user compared to the value of the marginal user to advertisers. From a consumer welfare perspective, in equilibrium, platforms tend to adopt the user-funded business model too often and insu ciently di erentiate their business models. Our results also show that regulatory interventions in digital markets aiming at mitigating market power of ad-tech rms or improving privacy protection can induce shifts in business models, with potentially ambiguous e ects on consumer welfare.

Suggested Citation

  • Marie-Laure Allain & Marc Bourreau & Pierre-Francois Darlas, 2025. "Digital Business Models and Quality Investment," Working Papers 2025-16, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2025-16
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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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