OpenAlex ·

Mechanism Design for Ad-Supported Platforms

Shota Ichihashi, Doh-Shin Jeon and Byung‐Cheol Kim

Published
Source
OpenAlex
Published in
arXiv (Cornell University)
DOI
10.48550/arxiv.2609.12870
Original
Read it at the publisher
Topics
EconometricsGeneral EconomicsOptimization & Control

Abstract

Many digital platforms earn revenue by selling content access and displaying ads. We study monopoly screening by a platform allocating heterogeneous content and ads to heterogeneous consumers. Advertising generates revenue and affects information rents through nuisance, which alters the platform's incentives to allocate content. The optimal mechanism balances a trade-off between advertising and rent extraction: Expanding content access increases advertising revenue but reduces sales revenue by raising information rents. The mechanism features novel distortions in content access and ad exposure, rationalizes contracts across ad-supported platforms, and explains why greater ad profitability may weaken incentives to invest in content quality.

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