Author 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 vs. unfavorable) and the nature of the relationship between first-party content and third-party content (complements or substitutes). As a result, first-party content is a strategic instrument that plays a dual role. On the one hand, it enables platforms facing unfavorable expectations to compensate for their difficulty in attracting third-party sellers. They should over-invest in first-party content that substitutes for third-party content relative to platforms benefitting from favorable expectations. On the other hand, platforms that benefit from favorable expectations capture a larger share of total surplus from buyers and sellers. They derive a higher return on investment in first-party content that complements third-party content relative to platforms facing unfavorable expectations. As a result, the latter under-invest in complementary first-party content. 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 singlehoming 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.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: May 2011 (Revised October 2011)
- HBS Working Paper Number: 11-123
- Faculty Unit(s): Strategy