Ulric B. and Evelyn L. Bray Social Sciences Seminar

Abstract: We consider creators who produce digital goods—interpreted here as videos—and compete for scarce consumer attention. To reach consumers, creators can distribute independently—keeping all ad revenue—or join a monopolistic platform that retains a share. Because the endogenous quality is an experience good, a key service the platform provides is ranking these goods. Ranking creates a tournament: raising quality moves a creator earlier in the feed, increasing views. Creators and consumers take these incentives into consideration when making their choices, in particular, whether to join the platform. We show how the platform's payment to creators and the ranking system affect quality competition, the platform's profit, and consumer and creator surplus.

Written with Ricardo Alonso (London School of Economics)