Online Content Platforms’ Decisions On The First-party Product Development And The Third-party Product’s Commission Rate

The growth of the Internet and mobile communications have created a vast market for content products,including both first-party contents produced by content platforms and third-party contents created by third parties.Content platforms usually face the tradeoff to produce 1^st-party content products and stimulate the 3^rd-party producers to improve their product values.Therefore,this paper builds a game-theoretic model to study（i）whether a content platform should enter its complementary content producing market by offering first-party contents and（ii）how such an entry affects third-party producers’product value and profit.We consider a scenario where the platform hosts two content producers providing partially substitutable products in a horizontally differentiated market and one of them can be replaced by the platform if the platform chooses to produce the 1^st-party product.Our analytical results show that the platform’s optimal producing decision depends on not only its technical capability but also the average revenue per user（ARPU）of the two products.In particular,the platform should produce the 1^st-party product when its technical capability is sufficiently high;upon its entry,even the superior third-party producer may be replaced by the platform if its product has a high ARPU.Furthermore,when the network effects are sufficiently strong,the platform will benefit from the market entry even if its technical capability is lower than that of the third-party producer being replaced.Moreover,after entering the content producing market,the platform should raise its commission rate if the remaining producer has a high technical capability and offers contents with a relatively high ARPU.Finally,with a stronger market expansion effect,the platform’s market entry will be more likely to be profitable,the optimal commission rate will be higher,and the remaining producer’s incentive to invest in product development will be lower.To sum up,this paper consider consumers’horizontal differentiated preferences for content products and the revenue sharing mode between content producers and platforms owner.This study investigates the decision of content platforms to provide the first-party content product and its impact on third-party producers.This study enriches theories of content platforms’strategy and provides a practically theoretical basis for content development decisions of content platform owners and third-party producers.