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First-Party Content and Coordination in Two-Sided Markets

Author

Listed:
  • Andrei Hagiu

    (Harvard Business School, Harvard University, Boston, Massachusetts 02163)

  • Daniel Spulber

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

Abstract

The strategic use of first-party content by two-sided platforms is driven by two key factors: the nature of buyer and seller expectations (favorable versus unfavorable) and the nature of the relationship between first-party content and third-party content (complements or substitutes). Platforms facing unfavorable expectations face an additional constraint: their prices and first-party content investment need to be such that low (zero) participation equilibria are eliminated. This additional constraint typically leads them to invest more (less) in first-party content relative to platforms facing favorable expectations when first- and third-party content are substitutes (complements). These results hold with both simultaneous and sequential entry of the two sides. With two competing platforms---incumbent facing favorable expectations and entrant facing unfavorable expectations---and multi-homing on one side of the market, the incumbent always invests (weakly) more in first-party content relative to the case in which it is a monopolist. This paper was accepted by Bruno Cassiman, business strategy.

Suggested Citation

  • Andrei Hagiu & Daniel Spulber, 2013. "First-Party Content and Coordination in Two-Sided Markets," Management Science, INFORMS, vol. 59(4), pages 933-949, April.
    • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:4:p:933-949
    DOI: 10.1287/mnsc.1120.1577
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    References listed on IDEAS

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