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Mechanism Design and Innovation Incentive for an Ad-Funded Platform

Author

Listed:
  • Shota Ichihashi

    (QUB - Queen's University [Belfast])

  • Doh-Shin Jeon

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Byung-Cheol Kim

    (UA - University of Alabama [Tuscaloosa])

Abstract

We study a mechanism design problem of a monopoly platform that matches content of varying quality, ads with dierent ad revenues, and consumers with heterogeneous tastes for content quality. The optimal mechanism balances revenue from advertising and revenue from selling access to content: Increasing advertising revenue requires serving content to more consumers, which may reduce access revenue. Contrary to the standard monopolistic screening, the platform may serve content to consumers with negative virtual values while, to reduce information rents, limiting their access to higher-quality content. Then, an increase in ad protability reduces its incentive to invest in content quality.

Suggested Citation

  • Shota Ichihashi & Doh-Shin Jeon & Byung-Cheol Kim, 2025. "Mechanism Design and Innovation Incentive for an Ad-Funded Platform," Working Papers hal-04953707, HAL.
    • Handle: RePEc:hal:wpaper:hal-04953707
    Note: View the original document on HAL open archive server: https://hal.science/hal-04953707v1
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