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Can social media platforms charge their users?

Author

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  • Mishra, Soumya Kanta
  • Sarkar, Sumit

Abstract

Traditionally social media platforms offered free service to users. The recent implementation of the pay-for-subscription model by some social media platforms motivated us to examine the equilibrium conditions under which the platforms can charge users. We model price competition between two horizontally differentiated platforms that can charge both the advertisers and users. The main results are: (i) Sufficiently strong platform preferences of the users enable the platforms to charge the users when they singlehome; (ii) Independent of parameter conditions, the platforms can charge the users when they multihome and advertisers singlehome.

Suggested Citation

  • Mishra, Soumya Kanta & Sarkar, Sumit, 2023. "Can social media platforms charge their users?," Economics Letters, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:ecolet:v:233:y:2023:i:c:s016517652300441x
    DOI: 10.1016/j.econlet.2023.111415
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    References listed on IDEAS

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    1. Yannis Bakos & Hanna Halaburda, 2020. "Platform Competition with Multihoming on Both Sides: Subsidize or Not?," Management Science, INFORMS, vol. 66(12), pages 5599-5607, December.
    2. Kevin A. Bryan & Joshua S. Gans, 2019. "A theory of multihoming in rideshare competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(1), pages 89-96, January.
    3. Ramnath K. Chellappa & Rajiv Mukherjee, 2021. "Platform Preannouncement Strategies: The Strategic Role of Information in Two-Sided Markets Competition," Management Science, INFORMS, vol. 67(3), pages 1527-1545, March.
    4. Xie, Jiaping & Zhu, Weijun & Wei, Lihong & Liang, Ling, 2021. "Platform competition with partial multi-homing: When both same-side and cross-side network effects exist," International Journal of Production Economics, Elsevier, vol. 233(C).
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Social media; Platform competition; Horizontal differentiation; Network effect; Advertisement nuisance; Multihoming;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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