Monopolistic Internet Media Platform

Telecommunications Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎
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Telecommunications Policy
URL: www.elsevier.com/locate/telpol
How can we make a socially optimal large-scale media

platform? Analysis of a monopolistic Internet media platform
using two-sided market theory
Song-min Kim n
Industry-Strategy Research Department, Electronics and Telecommunications Research Institute, Daejeon, South Korea
a r t i c l e i n f o abstract
Article history: Monopolistic media platforms (MMPs) are increasingly prominent in the global Internet
Received 16 October 2014 media industry due to the lock-in effect of the network economy. A MMP is capable of
Received in revised form offering great utilities to its users and content providers (CPs) because such parties do not
7 June 2016
need to access multiple Internet media platforms to find their trading partners. However,
Accepted 4 July 2016
a MMP operator (MMPO) can have a significant negative impact upon social welfare
whenever it attempts to maximize profits via abuses of its own monopolistic power.
Keywords: The aims of this paper are as follows: firstly, we construct a model of a monopolistic
Media platform media platform market to identify and analyze the decisions of a MMPO based on two-
Two-sided market
sided market theory. Secondly, we demonstrate how three factors – matching technology,
Technology
prosumer strategy and advertising technology – impact on the size of the network and
Advertising
Prosumer social welfare. Finally, we provide both policy makers and media platform operators
(MPOs) with useful suggestions on how to promote the Internet media industry and deter
MMPOs from abusing their own powers.
From the analysis of the modified new model we suggest, matching technology and
prosumer policy are demonstrated to increase the number of users and CPs of the plat-
form and increase social welfare. Advertising policy is also one way of increasing social
welfare, however, the necessity of monitoring of government for MMPO is proven because
it may harm the utility of users.
& 2016 Elsevier Ltd. All rights reserved.
1. Introduction
The proliferation of smart devices is changing the media industry through the fusion of broadcasting and communication
in the areas of technology, services and industry. In the past, the content for newspapers, magazines, terrestrial TV, cable TV,
satellite TV, and radio could only be provided by each individual media network. The rise of the mobile Internet and smart
devices has invigorated a certain type of media business, ‘the intermediary’ — one that generates revenue by connecting
consumers with contents. Due to intermediaries, a single content can be accessed using either a smartphone, a tablet PC, a
connected TV, or a PC connected to the Internet, as and when a user wishes. This phenomenon is changing the structure of
the media industry so that it is platform-centric.
n
Correspondence address: Industry-Strategy Research Department Electronics and Telecommunications Research Institute, 218 Gajeong-ro, Yuseong-gu,
Daejeon 305-700 South Korea.
E-mail address: Songmin516@etri.re.kr
http://dx.doi.org/10.1016/j.telpol.2016.07.001
0308-5961/& 2016 Elsevier Ltd. All rights reserved.
Please cite this article as: Kim, S.-m. How can we make a socially optimal large-scale media platform? Analysis of a
monopolistic Internet media platform using two-sided market theory. Telecommunications Policy (2016), http://dx.doi.org/
10.1016/j.telpol.2016.07.001i
2 S.-m. Kim / Telecommunications Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎
As media platform markets mature, we can easily see that the tipping effects of network externalities have caused media
markets to be dominated by a few leading media platform operators (MPOs).1 When a media platform grows large enough
to command more than 50% of the market, its operator has the opportunity to abuse its monopolistic power.2 We will call
such companies monopolistic media platform operators (MMPOs). Three examples of media platform markets are shown in
Fig. 1, with its historic data as followings. First, the time series data of the US search engine market, which shows that as this
market matures, the leading company's market share increases. In Fig. 1, Google’s share of the US search engine market was
34.8% in 2003 but had increased to 85% by the first half of 2012 (Cowen & Company, 2012). Google’s share of the world
search engine market was more than 88.15% with other players taking very small share of the market: Yahoo! 4.01%, Bing
4.61%, Baidu 0.55% in July 2014 (Statista 2014).
Second, the time series data of Korea search engine market shows that Naver, the Korean leading search engine service
provider, had only 30.9% of the domestic market in 2004 but this increased to 72% by 2013 (see Fig. 2, Nielsen Koreanclick
Aug. 2013, Quoted in FTC May 2014). Both the US and Korean markets were shared by several players at an early stage.
However, as these markets matured, the big got bigger and, eventually, the winners — Google and Naver — took more than
80% share of their respective markets.
The final example is a new type of Internet multimedia platform service is the Over the Top (OTT)3 video service market.
Consumers can access OTT videos through not only thier set-top boxes but also Internet-connected devices, such as desktops,
laptop computers, gaming consoles, smartphones, smart TVs, and tablets. As the service is provided through the Internet, new
players can easily enter the OTT video market without installing their own delivery networks and OTT video service providers
can easily expand their service coverage to other countries. Newcomers such as Netflix, YouTube and Hulu are providing
multimedia content in many countries, and the incumbent broadcasters have also entered the OTT video market to provide
their content to viewers with smart devices. The OTT video market is still in its infancy and is being shared among several
major players.4 However, in the Korean OTT video market, we can already see a tipping effect taking place. As of 2008, the
market share breakdown of the Korean OTT video market (by page view) was 42% for Pandora TV, 34% for Daum TV pot, 23%
for Africa TV, and 2% for YouTube. By August 2013 this had changed radically, with YouTube taking 74% of the market (Nielsen
Koreanclick Aug. 2013, Quoted in Etoday Oct. 2013).
Technological developments in the media industry, such as next-generation broadcasting systems, cloud computing,
HTML5, will accelerate the tipping effect of network externalities by lowering the switching costs of users and CPs. First,
next-generation broadcasting systems (ATSC3.0 and FOBTV)5 are expected to be deployed as IP-based systems. Conse-
quently, there will be very little difference between broadcasting services and other media services, which means that
broadcasting service providers and other media service markets will compete in the same merged media market. Second,
cloud computing6 is being adopted to achieve coherence and economies of scale when an MPO provides converged services
of fixed and wireless infrastructures. Companies such as Amazon, Google and Apple allow users to upload purchased
content to cloud services to be accessed anywhere and at any time. Content is also purchased and downloaded to devices
1
Banard and IfM (Institute of Media and Communications Policy), who provides the ranking of the top media companies, define media group and
media revenue as followings. IFM (2015) defines the media groups as enterprises that create journalistic content in mass media responsible and / or
distribute and produce substantial part of their sales with proceeds of rights, licenses and/or advertising and does not occur as a pure telecommunications
or technology provider. In contrast, Banard (2015) defines media revenue as all revenues deriving from businesses that support advertising – television
broadcasting, newspaper publishing, internet search, social media etc.
2
The existence of a dominant position may derive from several factors, but among these factors a highly important one is the existence of very high
market shares. According to Ch.2 Article 4 of the Korean Monopoly Regulation and Fair Trade Act (2014, 2016), if the market share of one enterpriser is 50%
or more, the enterprise shall be presumed to be a market-dominating enterprise. Article 102 of the Treaty on the Functioning of the European Union (TFEU)
prohibits abusive conduct by companies that have a dominant position in a particular market. Case 85/76, Hoffmann-LaRoche v Commission gave a
guideline regarding market shares. If the market share of an undertaking is above 70–80%, it is a clear indication of dominance. If it is above 50% over time,
the undertaking shall be presumed to have a dominant position. The Horizontal Merger Guidelines of U.S. Department of Justice and the Federal Trade
Commission (2010) say that agencies should calculate the Herfindahl-Hirschman Index (“HHI”) of market concentration and classify markets as being
highly concentrated market when the HHI is above 2500. When one individual firms’ market share is over 50%, HHI will be above 2500. However, Choi
(2013) indicated that in two-sided or multi-sided market, a simple measurement of market shares may be problematic.
3
OTT refers to video, voice and other services provided over the Internet rather than solely over the provider’s own managed network (OECD, 2013, p.
20).
4
In 2011, the market share breakdown of North America OTT content market was 51.2% for Netflix, 13% for Hulu, 12% for iTunes and only 4.3% for
YouTube. The market share breakdown of the UK was 24% for Channel 4, 15.5% for ITV, 14.8% for the BBC and 41.8% for others. The market share breakdown
of China was 37.3% for Youku & Tudor, 15% for Baidu, 13% for Tencent (ABI research, March 2013).
5
The next generation digital terrestrial television broadcast systems, ATSC3.0 and FOBTV are considering interoperability with non-broadcast dis-
tribution systems. The Advanced Television Systems Committee (ATSC) is the group, established in 1982, that developed the eponymous ATSC Standards for
digital television in the United States, and which was also adopted by Canada, Mexico, South Korea, and recently Honduras and is being considered for
adoption by other countries. Retrieved from: 〈http://atsc.org/newsletter/atsc-3-0-where-we-stand〉. FOBTV is an abbreviation for "Future of Broadcast TV".
The Future of Broadcast Television Initiative (FOBTV) is an unincorporated, not-for-profit association aimed at developing technologies for next-generation
terrestrial broadcasting systems and making recommendations to standardization organizations around the world. Retrieved from: 〈http://www.nercdtv.
org/fobtv2012/en/aboutus.html〉.
6
Mell and Grance (2011) has defined cloud computing as a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of
configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal
management effort or service provider interaction. This cloud model is composed of five essential characteristics, three service models, and four de-
ployment models.
10.1016/j.telpol.2016.07.001i
S.-m. Kim / Telecommunications Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎ 3
Fig. 1. Google’s share of US unique visitors 2003-1H12 (visitors, MM, %).

Source: comScore, Cowen and Company (2012).
Fig. 2. Changes in market share in Korean domestic search engine market (Oct. 2010-Apr. 2013).
Source: Nielsen Koreanclick (Aug. 2013). Quoted in FTC (May 2014)
from a variety of services. Third, HTML5, the new Internet markup language, was developed as a cross-platform7 mobile
application with the consideration of being able to run on low-powered devices such as smartphones and tablets. This
means that HTML5-based mobile contents can be presented on any modern web browser8–equipped mobile device re-
gardless of the device's operating system. These developments in technology, next-generation broadcasting systems (ATSC
3.0 and FOBTV), cloud computing and HTML5 will help users and CPs cross more media platforms. Therefore, as a media
market matures, its structure may change and become either oligopolistic or monopolistic in character.
There are pros and cons associated with being an MMP. The larger the MMP is, the greater utilities the MMP can give to
its users because of the strong positive cross-network externality of the large platform. Users do not need to access multiple
media platforms to access more content. The CPs does not need to contract with many media platforms to expose their
content to more users. Nearly all users and content providers worldwide can contact with one other on a large enough
media platform with the high likelihood of being able to satisfy their needs. However, when a media platform grows enough
to command more than 50% of the market share, its operator has some opportunities to abuse its monopolistic position. A
market may be judged to be under monopolistic competition when there are enough existing competitors and potential
competitors such that users and CPs can freely move from one MPO to another as and when they wish to do so. However, a
tipping effect and strong network externalities provide the leading player with the opportunity to abuse their position.
Google9 provides huge utilities to all of its users and CPs with its worldwide search engine service; however, it has yet to
7
Here, the platform means operating systems such as Android and iOS. Android and iOS is not compatible. Once the user chooses a smart device with
one OS (Android or iOS), then he/she has no choice but to use the applications provided for the application market specific to the OS. If the application
developers want to provide both application markets, they need multi-homing, to develop two versions of their applications and to provide to two
application markets.
8
Modern versions of Chrome, Opera, Firefox and Internet Explore adopt HTML5.
9
Google (USA) had been ranked as the number one global media owner in 2014 by Banard (2015), and also had been ranked as the number two global
10.1016/j.telpol.2016.07.001i
resolve some ongoing legal cases concerning the ruining of its rivals,10 privacy of its users11 and appropriation of CP
profits.12 Naver, the Korean leading portal service provider, also provides huge utilities to the Korean users, but it also has
some legal cases to resolve.13
With the above in mind, this paper aims to determine how to maximize the social welfare with a monopolistic media
platform. To solve this major question, this paper addresses the following three issues. Firstly, we construct two-sided media
platform models to analyze a monopolistic media platform operator (MMPO). As the Internet-based media platform market
has a short history, historic data analysis is very limited. On the other hand, a model-based analysis is possible without
historic data. The two-sided market model fits with the Internet-based media platform market but needs to be modified to
offer plausible and applicable lessons to those interested in building a socially optimal large-scale media platform. Secondly,
we demonstrate how three important factors — matching technology, prosumer14 policy, and advertising technology —
impact on the size of each side of the media platform and on its social efficiency. In contrast to traditional two-sided
markets, such as the credit card market or night club market, the Internet media platform market is experiencing rapid
technological developments. The development of technologies and technology related to business strategies affect not only
the pricing strategies of MMPOs but also the social efficiency of media platform market with the consequence that they need
to be analyzed. Finally, we demonstrate that an MMPO’s decisions are heavily biased towards the generation of its own
revenue by identifying the gap between the decisions of an MMPO and social planner. We suggest some indirect policy tools
to induce an MMPO to work like a social planner. The indirect policy tools that are needed are as follows; when this power is
abused, an MMPO may be fined by governments or sued by consumer groups, however, preventing such abuses through
legal processes takes a long time, and does not always guarantee a successful outcome.
In Section 2, we present a literature review. In Section 3, we develop two-sided media platform models and analyze
them. Section 4 shows findings from the model analysis and Section 5 presents the implications of the findings. Finally,
Section 6 summarizes all the results.
2. Literature review
Since the early 2000s, there has been a great deal of research on two-sided market theory — the majority of which has
discussed the pricing structures of the various types of two-sided platforms. The research of Rochet and Tirole (2003) is
based on transaction markets, such as the credit card market, in which the transaction itself yields utility. This research
indicates that imposing a lower price than the marginal cost (MC) on the agents of one side, which is called cross-sub-
sidization, can be a strategy to maximize the profit of a platform. If user multi-homing increases, then the platform operator
will lower user prices and increase seller prices. Similar to Rochet and Tirole (2003), research by Armstrong (2006) is also
based on transaction markets. Armstrong (2006) indicates that the equilibrium price is determined by (1) the size of the
externality between groups, (2) whether the charge is a lump sum or is dependent on usage, and (3) whether users par-
ticipate in a single platform or in multiple platforms. Caillaud and Jullien (2003) analyzed market equilibrium conditions
and pricing strategies of competing platforms in the information intermediary market (for example, the Internet), which is
characterized by network externality, nonexclusive service, and price discrimination. Their analysis indicated that in the
case of a single-homing (an exclusive service), two platforms compete with each other and all of the users lean toward one
platform, but the profit of the platform declines to zero because of cross subsidy. Conversely, in the case of a multi-homing
(a nonexclusive service), every equilibrium becomes profitable. Thus, they concluded that intermediary agents should
permit multi-homing in equilibrium. The research of Hagiu (2009) is based on that of Armstrong (2006), but consideration
of the competition of suppliers on the same side of a platform is included in the analysis. In the Hagiu (2009) model,
(footnote continued)
media company in 2015 by the IFM (2015).
10
The European Union’s antitrust chief formally accused Google of abusing its dominance in web searches: Google diverts traffic from its rivals to favor
its own comparison shopping site (Kanter & Scott, 2015).
11
Google had been fined for collecting private data in some countries. Epstein (2014) reported that Korea’s communication regulator decided to fine
Google $194,000 for collecting data of unspecified people by taking pictures for its Street View service. Lardinois (Jan 8, 2014) reported that France's data
protection watchdog (CNIL) has fined Google 150,000 euros over data privacy in January 2014. Robinson and Waters (2014) reported that the Dutch data
protection agency threatened that Google would be fined up 15 million euros if it did not stop violating the privacy of Internet users in the Netherlands.
12
The Authors Guild filed an appellate brief on 11th April 2014, renewing its complaint that Google is violating copyright laws with its mass book
digitization project. The brief, filed with the US Court of Appeals for the Second Circuit, claims that Google's "Library Project" is scanning copyrighted works
and making them available online without the copyright holders' consent, "driving potential book purchasers away from online book retailers, increasing
its advertising revenue, and stifling its competition." The original lawsuit was filed in 2005 with a settlement agreement reached in 2008 that was rejected
by a federal judge in 2011 (Tomsho, 2014).
13
In 2008, Korea Fair Trade Commission imposed on Naver a fine of 220 million won with a remedy order for abuse of dominance as the company
prevented Internet video firms from providing preview videos through its video search service. However, in November 2014, Korean Supreme Court
justices delivered a verdict that Naver, Korea's largest online portal, had not violated any fair trading law as a market dominating business operator.
14
‘Prosumer’ is a customer who helps a company design and produce its products. This word is formed from the words 'producer' and 'consumer'
(from the Cambridge Business English Dictionary). a customer who helps a company design and produce its products. This word is formed from the words
'producer' and 'consumer': a customer who helps a company design and produce its products. This word is formed from the words 'producer' and
'consumer': a customer who helps a company design and produce its products. This word is formed from the words 'producer' and 'consumer':
10.1016/j.telpol.2016.07.001i
consumers and suppliers (or sellers) transact through a platform. Suppliers enter the platform until the profit becomes zero,
and users participate in the platform until their utility is zero. The appropriate price structure is determined by the proper
ratio of the profit of the suppliers and that of the users. The ratio is mainly determined by the elasticity of demand of each
group. In other words, if the elasticity of a consumer’s demand on the platform increases and the elasticity of a supplier’s
demand decreases, then platform providers obtain more profit from suppliers. This paper takes examples from the com-
panies of PC operating systems, PDAs, smart phones, and so on, providing support to application developers. Microsoft,
Apple, Symbian, Palm, and Sun make profits from licensing. Weyl (2010) developed a theory of monopolistic pricing of a
media platform by analyzing The New York Times membership. In this model, the users are heterogeneous in their income
level and valuing membership of The New York Times.
Studies on media markets that are based on two-sided market theory are lacking. Gabszewicz, Laussel, and Sonnac
(2004), Reisinger (2012), Peitz and Valletti (2008), and Kind, Nilssen, and Sorgard (2006) and so on analyze media markets,
but their studies only focus on previous broadcasting media and advertising markets. Empirical analysis exists, but is not
sufficient. The research of Rysman (2004) addressed the phonebook market, Wilbur (2008) the TV advertisement market,
and Chandra and Wexler (2009) the newspaper market in Canada.
There is also a study on multi-sided markets. Boudreau and Hagiu (2009) proved that it is possible for platform providers
such as “Private Regulators” in the multi-sided market to produce the result they want by strategically using legal and
technical information. This paper takes the practical examples of Facebook, TopCoder, Roppongi Hills and Harvard Business
School. Choi (2006) proved that when pay-TV operators, whose profits depend on ads, and free-TV operators compete with
each other, there might be a market failure due to the market structure with respect to the supply of various programs and
advertising volumes.
The previous economic literature on advertising competition usually includes a model whereby a company determines
both the price and the advertising volume. Recently, research on online ads and Internet portal companies has been un-
dertaken. Reisinger (2012) analyzed an advertising market model. In this model, there were two advertising platforms that
competed for advertisers and users. In the case of the users, the platforms were differentiated, but for advertisers the
platforms were seen as being equal. This paper demonstrates that platforms operating under the Bertrand competition
model can make positive profits. Son (2013) developed a competition model addressing unfair competition. This model
analyzed the unfair competition of Apple and Google in the online advertisement markets. Although the research conducted
thus far has been voluminous, there is a lack of studies that analyze the monopolistic online media market, and a lack of
studies that analyze the technology and business strategies in relation to pricing strategies.
In summary, even though there has been a great deal of research on two-sided market theories since the early 2000s,
there have been little research on either Internet media platforms or on the two-sided platforms with technology devel-
opments. Building a new two-sided market model for Internet media platform will help understanding the Internet media
market. In Section 3, we will develop a two-sided platform model by transforming the model of Hagiu (2009), which
considers competition among participants of a two-sided platform. With this modified model we simulate the effects of
technology developments and business models to understand the new Internet media market, and to identify implications
for policy makers.
3. Model
3.1. Before modelling
In this section, we develop a new two-sided market model for monopolistic Internet media platform. In this new model,
there is an MMPO who brokers the trade of users and CPs (agents), and who makes profits by charging fees to each side
(each agent). The basic compositions and assumptions of the model are based on Hagiu (2009). Users are heterogeneous and
participate in the media platform only when their utilities are positive. CPs are also heterogeneous and participate in the
media platform only when their profits are positive. CPs in the platform compete against one another.
In this new model, the MMPO decides not only their optimal pricing system (subscription fees and transaction fees) but
also policies regarding the adoption of new technologies (matching and advertising technologies) and business strategies
(prosumer strategy). The media platform is linked with an Internet-based media contents market — where the price of
contents is determined by the CPs’s profit maximization condition and the MMPO’s transaction fee.
Additionally, this model considers two distinctive features of the Internet-based media platform market. Firstly, contrary
to other goods and services traded in other two-sided markets, the marginal cost (MC) of Internet-based media contents
(digital contents) is close to zero. Instead of considering MC for producing content, CPs should consider the MMPO’s
transaction fee when they decide their optimal content price. Secondly, there is a third revenue source — advertisement —
within the media market, so MPOs can offer a wider variety of transactions fees or cross-subsidies.
In section 3.2, the effects of matching technology will be demonstrated using the basic framework. In this section, three
major pricing types will also be compared. In section 3.3, the basic model will be extended to test prosumer and advertising
policies.
10.1016/j.telpol.2016.07.001i
Table 1
Examples of pricing types of leading MPOs.
Source: Based on Shin (2012), each operators homepage and annual reports: Apple (2013), Google (2013), Netflix (2013).
CPs Users Major revenue source
a
Lump sum fee Transaction fee Lump sum fee Transaction fee
Type 1 Apple App ($99/year) 30% of sales Apple receiver None Apple receiver
market
Amazon Media ($39.9/month for profes- 30% of sales Amazon receiver None Transaction fee from CPs
sional seller/None for a
seller)
Type 2 Netflix, Hulu None None Membership fee None Membership fee
plus, pooq, tving
Type3 Google App (Subscription fee $25) 30% of sales None None Advertising from the
market third party
YouTube None 5–50% of advertising None None Advertising from the
revenue sharing third party
Google/Naver None Advertising fee None None Advertising from CPs
search engine For CPs who want and the third party
advertising
a
“Lump sum fee” here is used in a broad sense. Purchasing receivers is not the real fee, however, it work like a lump sum fee of two part tariff in
Apple’s and Amazon’s business.
3.1.1. Pricing types

There are two types of fee that a MMPO can choose for users and CPs — lump sum and transaction. There exists various
combinations of fee types for each side (user side: 0, lump sum, transaction, lump sum þ transaction) (CP side: 0, lump
sum, transaction, lump sum þ transaction). There are 16 in total.
However, to keep the model simple, we will focus on only three fee types — ones that occur most often in the media
platform market. In this model, we view a user’s subscription fee (monthly fee) as a type of lump sum fee; as for a CP, we
focus on transaction fees because Internet-based platforms can charge fees based on transactions and even by the number of
clicks.
Pricing type 1: if ΠMMPO−ccp−cs≥0, lump sum fee for users and transaction fee for CPs
Pricing type 2: if ΠMMPO−cs≥0 and ΠMMPO−ccp <0, lump sum fee for users but no fee for CPs
Pricing type 3: if ΠMMPO−ccp≥0 and ΠMMPO−cs <0, no user fee but transaction fee for CPs
ΠMMPO is the profit of MMPO; cs is the cost for building and maintaining the charging system for subscribers; and ccp is the
cost for building and maintaining a charging system for CPs.
Table 1 outlines a sample of the pricing types employed by some of today’s leading MPOs. In pricing type 1, MPOs charge
both a transaction fee to CPs and a lump sum fee to users. To purchase or utilize Apple’s applications and contents, users
need only to buy either an iPhone, iPod or some other such device produced by Apple; users do not need to pay a trans-
action fee to the Apple App Store itself. Thus, in effect, the purchasing of such a device fulfills the function of paying a lump
sum fee. Apple’s App Store charges CPs both an annual subscription fee and a transaction fee for each piece of content a CP
wishes to sell. However, here, we overlook the lump sum fee (annual subscription) for CPs as it comprises only a small
portion of an MPO’s total income and since doing otherwise would make it impossible to obtain a numerical solution. In
comparison, Amazon Media (Amazon Kindle, Amazon Video, and Amazon Fire TV) has the same pricing type as that of the
Apple App Store but uses a very different pricing strategy. Amazon Media sets very low prices for its Amazon devices (for
example, Kindle and Fire TV) so as to rapidly increase the number of its users in a short period of time. They are, therefore,
left to rely largely on the profits made from the transaction fees that they charge their CPs.
In pricing type 2, the featured MPOs charge their respective users a membership fee. Many OTT service providers, such as
Hulu plus (US), Netflix (US), pooq (Korea), and tving (Korea), are charging either monthly or annual membership fees. In
some cases, OTT service providers sell contents by units; we will neglect this in favor of keeping our model simple and due
to the fact that selling according to unit of content accounts for only a small part of an MPOs total sales revenue to date.
In pricing type 3, the featured MPOs charge their respective CPs a transaction fee. Google Inc. uses this pricing type with
their search engine platform (Google Search) and YouTube, but the business strategy is different. Google Inc. obtains Google
Search-related revenue through advertising; CPs who want their content (or information) to be found by Google Search
users pay advertising fees to Google Inc. and provide their content accordingly. Google Inc. does not charge for non-com-
mercial content in an effort to encourage as many CPs as possible to provide content. YouTube makes advertising revenue
from third-party advertisers. CPs provide their content for free and share any advertising revenue they gain with YouTube.
This so-called sharing is a form of transaction fee.
10.1016/j.telpol.2016.07.001i
3.1.2. Three analyzing factors

For the aforementioned pricing types, we analyze the role of the three following factors, which we have observed to be
the most commonly adopted across successful global platforms:
Matching technology (δ ) — examples include search engine technology, big data technology, metadata technology, and so
on. With such technologies, MPOs are able to provide its users with content that is better related to their needs; con-
sequently, a positive feedback loop for each side of the platform is formed. We analyze how matching technology (δ )
affects a platform’s number of users and CPs. The range of δ is 0≤δ≤1. Perfect matching technology (δ = 1) means that
there is no users and no CPs who fail to find their favorite transaction partners in the media platform.
Prosumer effect (l ) — MPOs can obtain a great deal of free content by providing users with free Internet space with which
to create and share their own information, content, feelings, and so on. Platform providers can, in effect, transform users
into CPs by giving them with opportunities to provide contents via the Internet. We will call this the prosumer effect; l
denotes the utility of expressing user thoughts and feelings on Internet space. l is assumed to be always positive (l ≥ 0).
Advertising technology (b, β ) — in the majority of studies, advertising has been viewed as providing negative utilities to
viewers. However, MPOs can make profits from advertising and users can enjoy services for free, or at an extremely low
cost, by effectively paying with their eyes (that is, viewing advertisements). Due to the recent advanced advertising
technologies, advertising can bring about more positive utilities to viewers in the form of information or entertainment
and/or advertising can bring a higher rate of revenue to MPOs. According to MPOs’ advertising strategy and policy, MPOs
develop advertising utility technologies or advertising revenue technologies more. The variable β denotes the disutility of
advertising. The range of β is assumed to be −1≤β≤1. If β>0, then users feel disutility from advertising; if β≤0, then users
feel positive utility from advertising. The variable b denotes the amount of advertisement revenue per user 0≤b≤1.
3.2. Basic framework with matching technology and pricing types
In this section, we will build a basic version of the Internet-based media platform model with matching technology. After
building and analyzing a basic model based on pricing type 1, we will modify the model to pricing type 2 and 3, and then
compare the results. We will compare the MMPO’s profit maximizing decision and social planner’s total welfare maximizing
decision, and demonstrate the impact of the matching technology on the market performance.
3.2.1. Basic model with pricing type 1 (B1): Subscription Fee for Users and Transaction Fee for CPs
3.2.1.1. Users. A user, i, decides whether to join the MMP or not. If a user i joins MMP, they can find their favorite content
with the possibility of δ (the level of matching technology) among ncp types of content and consumes (1 − pc ) units of content
per each type of content. The user utility for one unit of content is normalized to 1. The net utility from consuming a single
piece of content is(1 − pc ). A user i can consume “other services” of the MMP, such as email, blogs, community services, and
so on and has utility of k (∀ i ). When a user joins the MMP, the user is charged a subscription fee (Su ) by the MMP. All the
users are differentiated by their type. Their disutility of the MMP, ‘θi ’, is horizontally differentiated and have normal dis-
tribution in [0,1]. θi is the same with the transportation cost of Hotelling’s liner city model. So, user i ’s net utility is that
outlined in Eq. (1). In order from users with low θi to those with high θi , users participate in MMP. The number of users who
take part in MMP is determined by the zero condition: uiB1=δncp (1−pc )2 +k − Su−θi=0. Thus, the number of users is that
shown in Eq. (2). Nu is normalized to 1.
uiB1=δncp (1−pc )2 +k−Su−θi (i=1, 2, 3, ….Nu ) (1)

n B1=θ^ =δn (1−p )2 +k−S
u i cp c u (2)
3.2.1.2. Content providers (CPs). Each CP produces one type of content, which is differentiated, obtains pc for one unit of
content, sells (1 − pc ) units of content to each user, and pays transaction fee (tcp ) to the MMPO. A CP, denoted by j, produces
content at a fixed cost of θj . The cost θj is normally distributed between [0, 1]. CPs need no marginal cost to copy and
distribute their content because all the media content is digitalized. Thus, j has the net profit function of Eq. (3).
In order from CPs with low θj to those with high θj , CPs participate in MMP. The number of CPs who take part in MMP is
B1
determined by the zero condition; πcp j =δnu ( 1 − pc ) ( pc − tcp )− θj =0 . Thus the number of CPs becomes like Eq. (4). Ncp is nor-
malized to 1.
B1
πcp j=δnu ( 1 − pc ) ( pc −tcp )−θj (j=1, 2, 3, … .Ncp ) (3)
B1 ^
ncp =θj =δnu ( 1 − pc ) ( pc −tcp ) (4)
3.2.1.3. Contents market. Content providers are competing in the content market. Content prices are decided in accordance
with the condition of profit maximization for CPs. Content provider j sets price pcj (for a single piece of content) in the profit
B1
function, πcpj (
=δnu 1 − pcj )( p −t )−θ , in such a way so as to maximize its profit. From the first differentiation of this CP
cj cp j
10.1016/j.telpol.2016.07.001i
Fig. 3. Structure of media platform market connected with content market (pricing type 1).
B1
∂πcp j tcp +1
profit function ( ∂P =0), the optimal level of content price can be found that pcB1 *= 2
, ∀ j . As the transaction fee tcp is the
cj j
same for all CPs, the price for a single piece of content, for all j, becomes Eq. (5).
tcp+1
pcB1 *=
2 (5)
3.2.1.4. Monopolistic Media Platform Operator (MMPO). Let us assume that there exists a MMPO that brokers content
transactions between its users and CPs, and that these transactions are profitable. It charges a subscription fee (Su ) to its
users and a transaction fee (tcp ) per unit of traded content to its CPs. The MMPO is assumed to be using a matching
technology that is capable of matching users and content; this is designated as operating at a certain level, δ , 0 ≤ δ ≤ 1. With
a probability of δ , a user and a CP trade (1 − pc ) units of content. The MMPO needs fixed cost CMMPO to develop and manage
the matching technology. If δ = 0,thenCMMPO=0. Thus, the profit of the MMPO can be determined by Eq. (6).
B1
ΠMMPO=δnu ncp ( 1 − pc ) tcp+nu Su −CMMPO (6)
MMPO sets the optimal level of subscription fee (Su ) for its users and a transaction fee (tcp ) for its CPs. From the first order
B1
∂ΠMMPO B1
∂ΠMMPO
condition of the profit maximization condition of Eq. (6) ( ∂Su
=0, ∂tcp
* , can be
=0) , the optimal level of fees, Su* and tcp
found.
B1
Max Su, tcp ΠMMPO=δnu ncp ( 1 − pc ) tcp+nu Su −CMMPO (7)
The concept of matching technology δ is analogous to the concept of matching technology λ in Caillaud and Jullien
(2003). The difference is that Caillaud and Jullien (2003) assumed that λ is a marginal level of matching technology. In this
paper, δ is assumed to be a total level of matching technology. Thus, as the MMP is assumed to be sufficiently well de-
veloped, it incurs no additional marginal costs as it takes on more users.
3.2.1.5. Decision-making process of the model. In this model, the decision-making process involving the MMPO, users, and
CPs is as follows (Fig. 3):
1. The MMPO chooses their pricing type (pricing type 1, 2, or 3).

2. The MMPO chooses subscription fee (Su ) for their users and transaction fee (tcp ) for its CPs.
3. The price of a single piece of content (pc ) is determined by CPs.
4. Users and CPs observe the prices and determine whether they wish to participate in the platform. This determines the
number of users and CPs, nu and ncp , respectively.
This model and decision-making process is based on the model of Hagiu (2009), who considered the competition of
participants on either side of a two-sided platform. In Hagiu (2009), users and CPs were differentiated according to how
they valued the platform — a scale of zero to one was used, whereby a value of one meant that the platform was at its most
valued.
10.1016/j.telpol.2016.07.001i
Fig. 4. Total user utility, total profit of CPs and profit of MMPO.
According to the decision making process, after the optimal content price of (5), the subscription fee (Su* ) and the
* ) are decided, both the number of users and the number of CPs using (2) and (4) can be obtained as
transaction fee (tcp
follows:
1 − Su*
nuB1=
⎛ 1 − tcp
* ⎞4
1 − δ2 ⎜ 2 ⎟
⎝ ⎠ (8)
1 − tcp*
B1
δ (1 − Su* )( 2
)2
ncp = *
1 − t cp
1− δ2 ( 2 )4 (9)
*
1 −tcp
δ (1 −Su* )
Demand for j’s contents is determined by dB1
j =δnu (1 − pc ) =
2
1 − tcp*
, and the total demand for all contents is de-
1 −δ2 ( )4
2
*
2 1 − tcp
n δ2 ( 1 − Su* ) ( )3
termined by DB1= ∑ j =cp1 dj=δnu ncp (1 − pc ) = 2
2
.
* ⎞4
⎛ 1 − tcp
{1 − δ2 ⎜ ⎟ }
⎝ 2 ⎠
27δ
The MMPO will develop its matching technology when the MMPO's profit function (6) is positive (CMMPO o ).
4 (256 −27δ2)
Otherwise, the MMPO chooses not to develop its matching technology (δ ¼0). In such a case, the MMPO would determine
B1 * B1 *
the level of fees to be tcp δ = 0=1,Su δ = 0=0. 5(put (8) and (9) into (7) and then the profit maximization condition can be ob-
B1 *
tained). Therefore, the optimal price of a single piece of content in this case would be pcB1δ=*0=1 (put tcp δ= 0=1 into (6)), the
number of users would be nuB1δ=*0=0. 5, but the number of CPs would be ncp
B1 *
δ= 0=0 . Consequently, the MMPO’s profit would be
B1 *
ΠMMPO δ= 0=0. 25 − CMMPO .
27δ
When the MMPO chooses to develop their matching technology (CMMPO o ), the optimal level of fees to be
(
4 256 −27δ2)
27δ2 +256
B1 *
tcp = − 0.5, SuB1 *= − (since0 ≤ δ ≤ 1, 0. 5 ≤ SuB1 *≤0.61790). In other word, cross-subsidy (the MMPO makes revenue
54δ2 −512
from charging users and support CPs with subsidy) is the most optimal policy to maximize MMPO’s profit like other two-
sided market models. In this case, the content price will be pcB1 *=0. 25, the number of users will be 0. 4410 ≤ nuB1 *≤0.559,
B1 * B1 *
and the number of CPs will be 0 ≤ ncp ≤0.3144 (0 ≤ δ ≤ 1). Thus, the MMPO’s profit will be 0. 25<ΠMMPO ≤0. 3706, the total
B1 *
utility of all users will be 0. 125<U B1 *≤0. 1562, the CPs’ total profit will be 0<Πcp ≤0.0494 , and the total social welfare will be
0. 375<W B1 *≤0. 5762. With δ=1,c =0, the total social welfare is maximized. In this model, the MMPO provides CPs with a
B1 *
subsidy (tcp = − 0. 5), which, in turn, brings in further profit and increases social welfare.
From proposition 1.1, we can demonstrate how δ affects the performance of a media platform market with MMPO.
10.1016/j.telpol.2016.07.001i
Fig. 5. Comparison of matching technology adoption conditions of social planner and MMPO.
Table 2
Main results of prosumer models (based on pricing type 1).
l ¼0.1, k ¼1 l ¼ 1, k ¼ 1
PR (l = 0.1) * PR (l = 1) *
−0.355 ≤ tcp ≤0 −0.02117 ≤ tcp ≤0
0. 5 ≤ SuPR (l = 0.1)≤0.5072 U PR (l = 0.1)=0. 125 0. 5 ≤ SuPR (l = 1) *≤0.6301 0. 125 ≤ U PR (l = 1) *≤0. 1413
0.3225 ≤ pcPR *≤0. 5 PR (l = 0.1)
Πcp =0. 0013 0.489415 ≤ pcPR *≤0. 5 PR (l = 1) *
0. 125 ≤ Πcp ≤0. 1612
0. 5 ≤ nuPR (l = 0.1)≤0. 5066 PR (l = 0.1)
ΠMMPO =0. 25 0.5595 ≤ nuPR (l = 1) *≤0. 7421 PR (l = 1) *
0. 25 ≤ ΠMMPO ≤0. 2568
PR (l = 0.1) W PR (l = 0.1)=0. 3763 PR (l = 1) * 0. 5 ≤ W PR (l = 1) *≤0. 5593
0.05≤ncp ≤0.1126 0.7686≤ncp ≤1.0148
(0 ≤ δ ≤ 1) (0 ≤ δ ≤ 1) (0 ≤ δ ≤ 1)
Table 3
Summary of main results of basic model: Comparing results of three pricing types.
Pricing type 1 (transaction fee for CPs þlump sum fee for users) Pricing type 2 Pricing type 3
lump sum fee for users transaction fee for
CPs (δ = 0. 5)
Π*−ccp−cs≥0 Π*−cs <0 , Π*−ccp <0 ,
MMPO Social planner Π*−ccp≥0 Π*−cs≥0
B1 * B1 (SP) *
tcp = − 0.5 tcp =−2 SuB2 *=0.5 SuB3 *=0
0. 5 ≤ SuB1 *≤0.6179 (0 ≤ δ ≤ 1) −4. 909 ≤ SuB1 (SP) *≤0 (0≤δ ≤ 1) B1 *
tcp =0 B3 *
tcp =0.3306
pcB1 *=0. 25 pcB1 (SP) *= − 0.5 pcB2 *=0. 5 pcB3 *=0. 6653
0.4410≤nuB1 *≤0. 559 nuB1 (SP) *=1 0.5≤nuB2 *≤0. 5333 nuB3 *=1.0031
B1 * B1 (SP) * B2 * B3 *
0≤ncp ≤0.3144 (0 ≤ δ ≤ 1) ncp =1. 5δ2 (0≤δ≤1) 0≤ncp ≤0.1333 (0 ≤ δ ≤ 1) ncp =0.0562
0. 125<U B1 *≤0. 1562 0.5<U B1 (SP) *≤10.4716 0. 125 ≤ U B2 *≤0. 1422 U B3 *=0. 5032
B1 * B1 (SP) * B2 * B3 *
0<Πcp ≤0. 0494 0<Πcp ≤2.515 0 ≤ Πcp ≤0. 0089 Πcp =0. 0016
0. B1 * ≤0.
25<ΠMMPO 3706 B1 (SP) * 0. 25 ≤ B2 * ≤0.
ΠMMPO 2666 B3 * ≤0. 0093
ΠMMPO
−5.5841 < ΠMMPO ≤0
0. 375<W B1 *≤0. 5762(whereδ = 1, c = 0, W gets 0.5<W B1 ( SP) *≤0.844 (whereδ=1, c = 0, W gets 0. 3750 ≤ W B2 *≤0. 4177 W B3 *=0. 5140
maximized) maximized)
Proposition 1.1. As the matching technology (δ) is further developed, the optimal subscription fee for user (SuB1 *) decrease.
As the subscription fee decreases, the number of users (nuB1 *) and of CPs (ncp B1 *
) increase. Consequently, MMPO’s profit
B1 * B1 *
(ΠMMPO ) increases. As a result,U B1 * (total utility of all users), Πcp (total profit of CPs), and W B1 * (total social welfare) are also
all increasing as functions of δ .
10.1016/j.telpol.2016.07.001i
Table 4
Conditions to obtain greater benefits under adoption of advertising policy model.
Conditions to get bigger benefits with advertising than users’ subscription fee
MMPO AD
ΠMMPO B1 *
≥ΠMMPO ⇒ b≥
0 . 25
δ= 0
1 −β
b (1 − β ) ≥ 0.25
Utility of user UAD *≥U B1 ⇒ β ≤ 0. 5,
δ=*0
group
1
(1−β )2≥0.125
2
Profit of CP AD *
Πcp ≥ΠcB1 * δ= 0=0 – –
group
Total social W AD *≥W B1 ⇒ 0 . 375 1 −β
δ=*0 b≥ −
welfare 1 −β 2
(1 − β )2
2
+b ( 1 − β )≥0.375
B1 * B1 *
The graphs of ΠMMPO , U B1 *, Πcp are increasing in δ as shown in Fig. 4. In addition, from the first differentiation of
B1 * dΠ B1 B1 *
dSuB1 * dn B1 * dncp dUB1 * dΠcp dW B1 *
SuB1 *, nuB1 *, ncp
B1 * B1 *
, ΠMMPO B1 *
, U B1 *, Πcp , andW B1 * in δ , dδ
<0, duδ ≥0, dδ ≥0, MMPO
dδ
≥0, dδ ≥ 0, dδ ≥ 0, and dδ
≥0 can be
obtained. For more details, see A.2.1. Proof of Proposition 1.1 in Appendix B.
Here, the decision of the social planner (SP) can be compared with that of the MMPO regarding matching technology.
Hence, the social planner can be demonstrated to develop the matching technology more aggressively, accepting a higher
cost and lower fees for users and CPs, thereby conferring higher social welfare.
Proposition 1.2. . If the social planner operates a MMPO, then they will develop matching technology under more relaxed
conditions than those of the MMPO.
As shown in Fig. 5, the social planner’s cost condition, CMMPO=0. 8438δ 2, is greater than that of the MMPO, CMMPO
27δ
¼ . This means that the MMPO will not develop its matching technology until its cost becomes sufficiently low, that
4 (256 −27δ2)
27δ
is, CMMPO o .
4 (256 −27δ2)
Proposition 1.3. If the social planner develops its matching technology, then the optimal transaction fee for CPs and the
B1 (SP) *
content price are set lower. In other words, the social planner’s subsidy for CPs (tcp = − 2)is greater than that of the
B1 *
MMPO (tcp = − 0.5). Consequently, the network sizes of each side of the social planner's MMP become bigger than those of
the MMPO's MMP. In addition, the total utility of all users, the total profit of CPs and the total social welfare, are all higher
than those of the MMPO. In summary, it is only the profit of the MMPO that sees a reduction. We can also see that
B1 (SP) *
t B1 (SP) * < t B1 *, S B1 (SP) * < S B1 *, n B1 * < n B1 (SP) *, n B1 * <n
cp cp u u u u cp cp
U B1 * < U B1 (SP) *, Π B1 * < Π B1 (SP) *, W B1 * < W B1 (SP) * , and
cp cp
B1 * B1 (SP) *
ΠMMPO > ΠMMPO . For more details, see Tables 4 and A.2.3 Proof of Proposition 1.3 in Appendix 2.
3.2.2. Basic model with pricing type 2 (B2): subscription fee for users and no fee for CPs
In this model, MMPO’s cost condition is ΠMMPO−ccp≥0andΠMMPO−cs <0. All of the other assumptions are the same as those
in the "Pricing Type 1" model (see 2.2.1) except the charging system. In this model, the MMPO does not charge any fee for
CPs and charges only a subscription fee to users. Thus, user i's utility function and the total number of users can be ex-
pressed in the same way as in the first model (see (Eqs. (1) and 2) ) Since MMPO does not charge any fee for CPs, the profit
function of CP j and the number of CPs can be expressed as follows, respectively :
B2
πcpj =δnu ( 1 − pc ) pc −θj (10)
B2 ^
ncp =θj =δnu ( 1 − pc ) pc (11)
1 B2
The content price that maximizes (10) is pc*= 2 . Thus, MMPO’s profit function is then ΠMMPO =nu Su −cs .
3.2.3. Basic model with pricing type 3 (B3): no fee for users and transaction fee for CPs
In this model, MMPO’s cost condition is ΠMMPO−ccp <0andΠMMPO−cs≥0. All of the other assumptions are the same as those
in the "Pricing Type 1" model (see 2.2.1) except the charging system. In this model, the MMPO does not charge any fee for
users but charges transaction fee for CPs. Thus, the profit function of CP j and the number of CPs can be expressed in the
same way as in the first model ( (3) and (4) ). Since MMPO does not charge any fee for users, user i's utility function and the
total number of users can be expressed as (Eqs. (12) and 13), respectively.
uiB3=δncp (1−pc )2 +k−θi (12)

10.1016/j.telpol.2016.07.001i
Fig. 6. Structure of media platform with advertising.
nuB3=θ^i =δncp (1−pc )2 +k (13)

tcp +1
The optimal content price is also same with Eq. (5), pcB3 *= 2
. Thus, MMPO’s profit function is then
B3
ΠMMPO (
=δnu ncp 1 − pcB3 * tcp−ccp .)
3.3. Extension of Model
3.3.1. Adoption of Prosumer Policy (PR)

In this section, the prosumer policy will be incorporated into the basic model with pricing type1 (section 2.2.1). The
producing consumer, “prosumer”, creates contents to either use on their own or to sell to media platforms, acting almost as a
sort of amateur CP. We can see a great deal of media content created by individual users from YouTube, Internet blogs, and
SNSs,15 such as Facebook. Individual users are satisfied when they express themselves and share their contents with other
people. Thus, these users produce and share their content despite the fact that they make no profit from doing so. In
addition, professional CPs may have some utility when they promote content. Many professional CPs upload their content
onto OTT platforms for free, for promotional purposes. Consequently, they must then seek alternative methods to make a
profit, such as by selling related products, concert tickets and so forth. These types of utility are placed in the CP’s profit
function, where l denotes the unit of utility that a CP receives by exposing his content to a single user. CP j’s profit function
and number of CPs are therefore as follows:
PR
πcp j =δnu ( 1 − pc ) ( pc −tcp )−lnu −θj (14)
PR ^
ncp =θj =δnu ( 1 − pc ) ( pc −tcp )+lnu (15)
User i's utility function and the total number of users can be expressed in the same way as in the first model ( (1) and
(2)), uiPR =δncp (1−pc )2 +k − Su−θi , nuPR =θ^i =δncp (1−pc )2 +k − Su . The MMPO’s profit function and price of content are the same as
PR tcp +1
those in the first model ((5) and (6)). Thus, ΠMMPO =δnu ncp ( 1 − pc ) tcp+nu Su −CMMPO and pcPR *= 2
can be obtained. By sub-
stituting pcPR * into both in (2) and in (15), nuPR * andncp
PR *
are determined as following (16) and (17) respectively.
k−S u
nuPR *= 2
1 − δ ( 1−pc ) {δ ( 1 − pc ) ( pc −tcp )+l} (16)
PR *
(k−Su ){δ ( 1 − pc ) ( pc −tcp )+l}
ncp = 2
1 − δ ( 1−pc ) {δ ( 1 − pc ) ( pc −tcp )+l} (17)
After substituting (16) and (17) into (7), the optimal level of S*u andtcp
* maximizing its own profit can be obtained. Here we
PR
dΠMMPO PR
dΠMMPO
suppose that k and l are given externally. From the profit maximization conditions ( dSu
=0,and dtcp
=0), we can obtain
SPR * PR *
u andtcp as follows:
15
SNS (OTT messing) is not a two-sided platform service. Prosumer media platform model here concerns only two-sided platform services.
10.1016/j.telpol.2016.07.001i
2l 1
−4 1
tcpPR *=A− 3δ +
A 2 (18)
1
whereA=[ {( 2l
3δ
−
1 3
4 ) +( l
2δ
+ 8)}
1 2 2
−
l
2δ
1 1 3 1
− 8 ] 3 . If l= 8 δ ; tcpPR *= 2 .
With the profit maximization condition, S*u can be obtained as follows:
k (16 − δ2−4δl+6δkB+12δklB2−8δ2B3+3δ2B 4 −8δklB)

SPR
u =
*
−2δ2+32 − 8δl−4δ2b3+4δ2B+8δlB2+2δ2B 4 (19)
1
⎡ 1 ⎤3
⎢ ⎧ ⎛ 2l 1 ⎞ ⎫2 ⎛ l
2l 1
1⎞ ⎛ l 1 ⎞⎥
− 3 2
1 ⎪ ⎪
whereB=C− 3δ 4
+ , C =⎢ ⎨ ⎜ − ⎟ +⎜ + ⎟⎬ −⎜ + ⎟⎥ .
C 2 ⎝ 4⎠ ⎝ 2δ 8⎠ ⎭ ⎝ 2δ 8 ⎠⎥
⎢⎣ ⎩ 3δ
⎪ ⎪
However, as (18) and (19) are too complicated to compare in their current states, we simplify the formulae concerned by
substituting l ¼ 0.1, k ¼ 1, and l ¼ 1, k ¼ 1, respectively, and then make a comparison.
PR* increases further, which, in turn, has a positive impact

Proposition 1.4. If the MMPO adopts a prosumer policy, then ncp
PR*. Consequently, U PR *, Π PR *, andW PR *increase.
upon ncp c
In Table 2, the results of two cases, l ¼0.1 and l ¼1 are summarized. Table 2 shows that CPs receive less subsidies from
PR (l = 1) * PR (l = 0.1) * PR (l = 1) *
MMPO (tcp ≤tcp ) because CPs’ get more benefit from presenting their own content. However, ncp is far bigger
PR (l = 0.1) PR (l = 0.1) PR (l = 1) * PR (l = 0.1)
than ncp , and consequently nuPR (l = 1) * > nuPR (l = 0.1), U PR (l = 1) *>U , ΠcPR (l = 1) * > ΠcPR (l = 0.1), ΠMMPO > ΠMMPO and finally
W PR (l = 1) * 4 W PR (l = 0.1)..
3.3.2. Adoption of Advertising Policy (AD)

Advertising policy can play a very important role in a MMPO’s business model. When a MMPO displays advertisement on
its media platform, it can make profits from the sponsors of the advertisements. In this case, a MMPO can charge lower fees
to users and/or CPs, and can even provide a subsidy to users and/or CPs. However, advertisements may irritate some users as
they are consuming media content. Advertisements have been viewed by past studies as supplying negative utility to
viewers or users,. Reisinger (2012) demonstrated that MPOs can obtain positive profit margins in the advertising market but
that such profits come at the expense of increased user nuisance costs (from advertising). Due to recent advancements in
advertising technologies, advertising can bring more positive utilities to viewers in the form of information or entertain-
ment and advertising can bring about a higher rate of revenue for MMPOs. According to the MMPOs’ advertising strategy
and policy, MMPOs may develop more advertising utility technologies or advertising revenue technologies.
We integrate the effects of advertising into the model and demonstrate that a MMPO can still make a profit that is at least
equal in size to that obtained from subscription fees.
In this advertising model (Fig. 6), users have the same properties as those in the basic model with pricing type1 (section
2.2.1) with the exception being that they consume the advertisements provided by the MMPO instead of paying a mem-
bership fee. The users have disutility β with regard to the advertisements provided by the MMPO. In this model, adver-
tisement can increase a user’s utility through the provision of information and entertainment or increase the user’s nuisance
cost (due to excessive advertising or infringement upon personal information). Thus, the range of β is −1≤β≤1. If β>0, then
users feel disutility from advertising; if β≤0, then users feel positive utility from advertising. Users pay pc per single piece of
content and gain utility β as follows. The user utility uiAD becomes Eq. (20), and users partake in the MMP according to their
net utility. Therefore, the equation for number of users nuAD is (21).
uiAD=δncp (1−pc )2 +k−β−θi (. (20)

n AD=θ^ =δn (1−p )2 +k−β
u i cp c (21)
The CPs here are considered to be identical to those that appear in the previous models and pay a fee per transaction. So
AD AD
the CPs’ profit function, πcpj , is the same with (3) and number of CPs’ function, ncp , is the same with (4). From the conditions
AD AD *
of profit maximizing for πcp j , the optimal contents price, pc , is the same with (5).
The MMPO sells advertising on their platform and receives advertising revenue. In this model, MMPO does not charge
users a subscription fee but charges only CPs transaction fee. CPs receive no share of the revenue generated from adver-
tising. Advertising revenue is in proportion to the number of media platform users nu , and the advertising revenue per user
is denoted as b, 0≤b≤1. Here, we suppose that the cost of advertising on the MMPO’s media platform is 0. Then, the MMPO’s
profit function becomes (22).
AD
ΠMMPO=δnu ncp ( 1 − pc ) tcp+nu b−CMMPO (22)
If pcAD * (5) is substituted into (4) and (21), then the numbers of users and CPs can be obtained as follows:
10.1016/j.telpol.2016.07.001i
1−β
nuAD= 1 − tcp 4
1 − δ2 ( 2
) (23)
AD
⎛ 1−tcp ⎞2 1−β
ncp =δ ⎜ ⎟
⎝ 2 ⎠ 1 − tcp 4
1 − δ2 ( 2 ) (24)
If (5), (23), and (24) are put into (22), then the profit function of the MMPO can be obtained as follows:
Maxtcp Π AD =δnu ncp ( 1 − pc ) tcp+nu b−CMMPO

MMPO
⎡ ⎤2
⎢ 1−β ⎥ ⎛ 1−tcp ⎞2 1−β
=δ2 ⎢ ⎥ ×⎜ ⎟ + b−CMMPO
⎥ ⎝ 2 ⎠ 1 − δ2 1 − tcp
4 4
⎢ 1−δ2 1 − tcp
⎣ (2 ) ⎦ 2 ( ) (25)
AD *
MMPO sets the optimal level of the transaction fee (tcp ) for its CPs under the profit maximization condition of equa-
AD
dΠMMPO AD *
tion (27). From the first order condition of dtcp
=0, we can get tcp
⎧ (i) 1 ( δ = 0)
⎪
⎪ 1
⎪ ⎛ B 3d2 ( β −1) ⎞ 2
AD * ⎨ (ii) 1 + 2 ⎜ A + A − ⎟
tcp = ⎝ 6bd 2 ⎠
⎪
⎪ ⎛ B
1
3d2 ( β −1) ⎞ 2
⎪ (iii) 1 − 2 ⎜ A + A − ⎟
⎩ ⎝ 6bd 2 ⎠
1
⎧ 1 ⎫3
⎪ ⎡ ⎛ ( β−1)3 ⎞2 ⎤2 ⎡
( β − 1)
3 ⎤⎪ 2
⎥ ⎬ andB = 1 + (
⎢ β − 1 ⎥ β − 1 β − 1)
where A = ⎨ ⎢ ⎜⎜ + ⎟ −B
⎟
2
⎥ −⎢ + .
⎣⎢ 8b 2bd ⎥⎦ ⎪
3 2 3 2 2
⎪
⎪ ⎣⎝
8b 2bd ⎠
⎦ ⎪
3d 4b
⎩ ⎭
(i) is applicable even if there’s no matching technology or advertising revenue. In this model, as (ii) and (iii) are imaginary
AD * AD *
numbers, tcp =1 is the only solution. If the MMPO sets the price of the transaction fee for CPs as tcp =1, then the price of
content is pcAD *=1, the number of users is nuAD *=1 − β , the number of CPs is ncp
AD *
=0, and the profit of the MMPO becomes
AD * 1 AD *
ΠMMPO =b (1 − β ). Here, the total utility of all users is UAD *= 2 (1−β )2 and the total profit of CPs is Πcp =0. Accordingly, the total
(1 − β )2
social welfare becomes WAD *= 2 +b ( 1 − β ).
In the real world, when the MMPO has limited resources and has to decide whether to invest in either decrease the
disutility of advertisement ( β ) or increase the revenue of advertising (b), they are likely to invest more in b .
Therefore, we find the conditions whereby each of the total utility of users, the total profit of CPs, the profit of the MMPO,
and the social welfare (under the advertising model) is greater than or equal to its respective counterpart in the basic model
under the pricing type 1. Here, we compare the basic model under the pricing type 1 with the advertising model under the
pricing type 3 consider only the “no matching technology” condition to compare it under the same condition with the
B1 *
solution of (25). When the MMPO adopts pricing type 1 without matching technology, ΠMMPO δ= 0=0.25,
* =0.125,ΠcB1 * δ = 0=0,andW B1
Up1 *
δ = 0=0.375(see section 2.2.1) can be obtained. Here, the necessary conditions to obtain greater
benefits under the adoption of an advertising policy model are shown in Table 3.
AD B1 * 0.25 0.25
To make ΠMMPO≥ΠMMPO δ= 0 , b*≥ 1 −β has to be satisfied. The left part of the curve, b ≥ 1 −β
,in the graph below exemplifies
this fact. As for the total utility of all users, UAD *≥U B1 *
δ= 0 to be satisfied, β < 0.5. In other words, UAD * should be positioned on
the left part of the vertical line β = 0.5, in the graph. The number of CPs is fixed at 0. To make the aggregate social welfare
(1 − β )2 1 −β
WAD * greater than W B1 *
δ = 0 (that is, 2
+b ( 1 − β ) >0.375), and for this to happen, b> 0.375
1 −β
− 2 should be satisfied.
In summary, in Section 3 we have built a basic model with searching technology and extended the model to include
prosumer policy and advertising policy. These models demonstrate the effects of δ , l,b and β , when users, CPs and MMPO
make decisions to maximize their own utilities and profits. In Section 4, we will summarize the results of Section 3 and
discuss the implications of the results.
10.1016/j.telpol.2016.07.001i
Fig. 7. Welfare change of each party according to the disutility level of advertising.
4. Findings
4.1. Findings from basic model
In section 3.2, the basic model with matching technology and three pricing types was proposed, and a comparison of
three pricing types and of MMPO’s and social planner’s decisions undertaken. The section also demonstrated the impact of
the matching technology as well. All the results from the basic model analysis are shown in Table 4.
From the results of the basic model, we can induce following three findings.
Firstly, with the pricing type 1, the MMPO obtains the highest profit from pricing type 1
B3
(Π B1 *
MMPO > Π B2 * , Π B1 * > Π * ). However, in the real business world providing a subsidy for each and every transaction
MMPO MMPO MMPO
will be too costly. Therefore, the MMPO could consider giving greater benefits to those CPs that have a high number of
transactions, then other CPs may well then try to increase their numbers of transactions while the decreasing cost of
content.
B1 *
Secondly, the number of users (nuB1 *) and number of CPs (ncp ) are an increasing function of the matching technology (δ).
As the matching technology (δ) becomes developed more, the optimal subscription fee for user(SuB1 *) decreases. However,
B1 *
users receive greater utility with higher δ , and more users participate in MMP. Consequently, MMPO’s profit (ΠMMPO ), total
B1 *
utility of all users (U B1 *), total profit of CPs (Πcp )and total social welfare (W B1 *) increases as δ increase.
Thirdly, the MMPO’s decision is compared with that of the social planner. If the social planner were to operate the MMP,
then they would likely develop their matching technology more aggressively (under more relaxed conditions than those
B1 (SP) * B1 *
imposed by the MMPO) and social planner’s subsidy for CPs (tcp = − 2)is greater than that of the MMPO (tcp = − 0.5).
Then, the network size of each side of the MMP of social planner becomes larger than those of the MMPO
(nuB1 (SP) * > nuB1 *, ncp
B1 (SP) * B1 *
> ncp ). In addition, the total utility of all users, the total profit of CPs, and the total social welfare
are all higher than those of the MMPO respectively. In summary, it is only the profit of the MMPO that sees a reduction.
4.2. Findings from extended models
In section 3.3, the extended models, with prosumer policy and advertising policy, were developed, and the impacts of
these new factors demonstrated.
When the MMPO adopts a prosumer policy, CPs’ get more benefits of presenting their own contents so that ncp PR* in-
PR (l = 1) * PR (l = 0.1) PR (l = 1) * PR (l = 0.1) *
creases further (ncp 4 ncp ) even though the MMPO gives less subsidies (tcp ≤tcp ). Consequently, the
PR (l = 0.1) PR (l = 1) * PR (l = 0.1)
model analysis has shown that nuPR (l = 1) * > nuPR (l = 0.1) , U PR (l = 1) *>U , ΠcPR (l = 1) * > ΠcPR (l = 0.1), ΠMMPO > ΠMMPO and finally
W PR (l = 1) * 4 W PR (l = 0.1) (see Table 2). In other words, increase PR*,
of ncp in turn, has a positive impact upon nuPR* and consequently,
U PR *, ΠcPR *, and W PR *increase.
When a MMPO adopts an adverting policy on its media platform, it can generate profits from the sponsors of the
advertisements. In this case, a MPO can charge lower fees to users and/or CPs, and can even provide a subsidy to users and/
or CPs. However, advertisements may bother some users while they consume media content. In our advertising model, the
disutility of advertisements can be controlled through the development of technology. We compared the basic model of
pricing type1 (lump sum fee for users and transaction fee for CPs) with the advertising model and found the necessary
AD B1 * 0.25
conditions to obtain greater benefits under the adoption of an advertising policy model. To make ΠMMPO≥ΠMMPO δ= 0 , b*≥ 1 −β
10.1016/j.telpol.2016.07.001i
Fig. 8. Comparing the advertising rate of return and the welfare effects of adopting (t*ad=1, δ = 0 ).
has to be satisfied. As for the total utility of all users, for UAD *≥U B1 *
δ= 0 to be satisfied, then β < 0.5. The number of CPs is fixed at
0.375 1 −β
0. To make the aggregate social welfare, WAD *≥W B1 *
δ= 0, b> 1 −β − 2 should be satisfied.
This analysis indicates some implications for policy makers.
AD *
In Fig. 7, the graphs of ΠMMPO , UAD * and WAD *with β on the x-axis show that the three of them are maximized at β = − 1,
and as the disutility of an advertisement increases (as β increases), the welfare of each party decreases. However, the rates of
AD *
decrease are all different: when 0<β <1, as β decreases, UAD * decreases more dramatically than ΠMMPO does. If β o0, then the
total utility of all users is higher than the profit of the MMPO, but is the same when β=0. If β 40, then the total utility of all
users will be less than the profit of the MMPO. In this case, the total utility of all users, the profits of CPs, the profit of the
MMPO, and the total social welfare are all determined by both the users’ utility from advertising ( β ) and the advertising
revenue per user (b).
Fig. 8 shows the critical triangle area ‘A′ where total users’ utility decreases but MMPO’s and total welfare increases. On
the upper part of the graph, the total social welfare (under the adoption of an advertising policy model) is bigger than that
for the models without the advertising policy, whereas the total utility of all users becomes smaller under the adoption of an
advertising policy model. In the sector formed by “A þB”, the profit of the MMPO becomes bigger under the adoption of an
advertising policy model, whereas the total utility of all users and total social welfare become smaller. Thus, the MMPO is, to
make a bigger profit, inclined to increase the level of advertising to the extent that a user’s disutility for an advertisement
increases. Moreover, it is also the case that the government, which is in a position similar to that of a social planner, should
feel so inclined as to support an MMPO in increasing advertisement, either explicitly or implicitly, to the extent of de-
creasing total social welfare. This occurs if the government places industry activation above total social welfare.
Governments may impose a privacy requirement upon companies operating in their jurisdiction.16 However, imposing
such a requirement on global companies often proves to be difficult. With this in mind, though companies operating under
government jurisdiction cannot enter the sector formed by “A þB”, global companies can, and, in doing so, they may damage
social welfare and engross financial profit. Thus, the necessary measures to prevent this should be taken.
In summary: in this section we have summarized the results and discussed their implications. We build on this in the
following section, initially discussing the matching technology, prosumer policy and advertising policy. After that, we will
discuss policy items that encourage the MMPO to work like a social planner.
5. Discussion
We built a modified two-sided market model aimed specifically at the Internet-based media platform market to analyze
the Internet–based media platform market. After building a two-sided media platform model that included three of the
most common pricing types, we analyzed and simulated the effects of the three most important technological and business
factors — matching technology, prosumer strategy, and advertising technology — on users, CPs, the MMPO, and social
welfare. Firstly, we found that matching technology is proven to increase the numbers of users and CPs, users’ utility, CPs’
profit, MMPO’s profit and social welfare. Examples of matching technologies include search engines, big data, metadata and
media asset management. Contrary to text content, media content is still lacking in these technologies. Thus, these tech-
nologies have the potential to provide MMPOs with key competitive advantages in the future. Secondly, prosumer policy
increases the number of CPs, which, in turn, increases the number of users. Consequently, this brings about benefits for all
the interested players. An example of prosumer policy is providing users with the Internet space and tools to express
16
For the example, please see footnote 11.
10.1016/j.telpol.2016.07.001i
themselves and share content with others. This turns content-consuming users into content-producing producers. As more
CPs join the MMP, greater amounts of a range of content can be shown, which, in turn, means that more users are en-
couraged to participate in the MMP to consume this content. In the end, the MMPO will become more profitable. Thirdly, the
advertising policy also increases the profits of CPs and MMPOs. However, too much advertising may harm the utility of
users. Due to the development of advertising technologies, advertising can bring about more positive utilities to viewers in
the form of information and entertainment. Thus, advertising can bring about a higher rate of revenue for MMPOs. The
examples of advertising technology are targeted advertising technology, big data, real-time bidding for online and mobile
advertising inventory, real-time audience data (including location, age, gender etc.) and so on.
The analysis of the modified two-sided market model gave us plausible and applicable lessons upon which to build a
socially optimal large-scale media platform. Several policy items to induce the MMPO to work like a social planner are
deduced from the comparative analysis of the monopolistic model and social planner’s model. Firstly, the MMPO has less
incentive to invest in the development of matching technology than the social planner. If the government funds or provides
subsidies for the development of matching technology, then the MMPO can set lower fees for users and CPs, which, in turn,
can increase the total social welfare. Secondly, prosumer policy is an effective tool to increase the number of CPs. The search
engine market in Korea overcame the chasm of Moor’s early stages of its business by adapting a prosumer policy
(“Knowldege-in of Naver”), whereby users are encouraged to answer the questions of other users. If an MPO or an MMPO of
a new type of media adopts a prosumer policy, then the government can support any ensuing prosumers in terms of
providing them with media-producing equipment, such as cameras and editing tools, or media production education
programs at low prices. This policy of supporting prosumers can help the latest types of content (for example, Ultra High
Definition (UHD) TV, 3DTV and interactive data) to flourish in a short period of time. In addition, a prudent and appropriate
copyright protection policy is needed to encourage the media CPs of today to produce high-quality content.
Thirdly, advertising needs to be monitored and regulated to protect users. The MMPO is inclined to increase the level of
advertising to the extent that a user’s disutility for an advertisement increases to make a bigger profit for itself. Therefore,
the government needs to monitor and regulate, if possible, both the local and global MMPO’s level of advertising. Above all,
governments need to provide guidelines to the industry regarding how to advertise without infringing on user privacy and
how much advertising is acceptable to such users. Moreover, the model analysis showed that if the government, which is in
a position similar to that of a social planner, places industry activation before consumer/user protection, it may be inclined
to acquiesce to desire of the MMPO for more advertising. Thus, civil society also needs to engage with the regulatory process
to hold both the companies and government to account.
In this research, we have built a modified two-sided market model and analyzed several factors. However, this research
needs to be extended further. The competitive market models, with a wider range of pricing types, should be developed
further. Additional diverse business models and government policies, for example, the CP’s advertising model, privacy policy
and copyright protection, also need to be analyzed. In this further research, the complexity of the mathematics should be
addressed. Simple and realistic two-sided models need to be developed, so that we can obtain numerical solutions that are
applicable to real world situations.
6. Conclusion
The structure of today’s media industry is changing into a platform-centric structure, and the lock-in effect of today’s
network economy provides MMPOs with the opportunity to maximize their profits, ruining the utility of users and the profit
of CPs. Although the importance of the MMP is increasing, it is not easy to study the media platform industry empirically
because of the lack of data. However, the theoretical model analysis of this article produced the following three results.
Firstly, a new MMPO model based on the two-sided market theory has been developed. Secondly, the model analysis
demonstrated how three factors – matching technology, prosumer strategy and advertising technology – affect the size of
the network and social welfare. Finally, the analysis has provided some useful suggestions for policy makers and MPOs
regarding how to promote the Internet based media industry and how to encourage MMPOs not to abuse their powers.
Acknowledgments
This work was supported by the ICT R&D program of MSIP/IITP (14-000-02-001). Development of UHD Realistic
Broadcasting, Digital Cinema, and Digital Signage Convergence Service Technology). We would like to thank Professor C.H.
Yoon at Korea University and Prof. D.H. Lee at Kaist, for their constructive comments on the early stage of this paper. Finally,
we would like to thank the editor and two anonymous reviewers for their helpful comments and suggestions.
10.1016/j.telpol.2016.07.001i
Appendix 1
A.1.1. Variables
Variable Name Variable description
ΠMMPO Profit of MMPO MMPO earn profit by charging their users/CPs subscription/transaction fee
ui Net user utility Net utility of user i from consuming the media contents and other services of the media platform
πcpj Profit of content CP earn profit by creating and selling their contents to the users
provider
nu the number of users The number of users who join the MMP
Nu Total number of poten- The total number of users who can potentially join the MMP
tial users
ncp the number of CPs The number of CPs who join the MMP. A each CP create a kind of contents, the number of CPs is the same with
number of different contents
Ncp Total number of poten- The total number of CPs who can potentially join the MMP
tial CPs
Su Subscription fee for Lump sum fee for users charged by MMPO (for example, subscription fee, monthly fee, membership fee and so
users on)
tcp transaction fee for CPs Transaction fee for CPs charged by MMPO
MMPO charges tcp for every single transaction
pc Content price the price of a single piece of content determined by CPs in the contents market
U Total utility of users nu
Total utility of user groupU = ∫ ui dθ i
0
Πcp Total utility of CPs ncp
Totalprofitofcontent providersΠcp= ∫ πcp dθj
0
W social welfare Social welfare (W = U + Πcp+ΠMMPO )
A.1.2. Parameters
Parameter Name Parameter description
δ Matching technology Level of matching technology. Perfect matching technology (δ = 1) means that there is no users and no CPs
who fail to find their favorite transaction partners in the media platform with δ = 1.
δ is normalized to 1. 0 ≤ δ≤1
β The disutility of Disutility of advertisement per user. −1 ≤ β≤1 . If β>0 , then users feel disutility from advertising; if β≤0 , then
advertisement users feel positive utility from advertising.
b Adverting revenue The amount of advertisement revenue per user, 0 ≤ b≤1
l Prosumer effect The utility of exposing CP’s content to a single user of MMP
Users can create and provide their contents because of prosumer effect even though they can not make any
profit. 0 ≤ l
k The utility of MMP service User utility related to consumption of “other services” 0 ≤ k
θi Disutility of user i, A user, denoted by i, has a disutility of θ i whenever they use the MMP. θ i is a horizontal differentiation
parameter distributed over [ 0,1]
θj : Cost of CP j A CP, denoted by j, produces content at a fixed cost of θj . θj is a horizontal differentiation parameter dis-
tributed over [ 0,1]
CMMPO Matching technology cost MMPO’s fixed cost C to develop and manage the matching technology. 0 ≤ CMMPO
cs Subscription fee charging The cost for building and maintaining the charging system for subscribers 0 ≤ cs
system cost
ccp Transaction fee charging The cost for building and maintaining a separate charging system for CPs 0 ≤ ccp
system cost
Appendix 2. Proofs of propositions
A.2.1. Proof of Proposition 1.1
27δ2 +256 dSuB1 *

The subscription fee for user is SuB1 *= − . First differentiation of SuB1 * in δ ( <0) shows that SuB1 * decreases in δ .
54δ2 −512 dδ
10.1016/j.telpol.2016.07.001i
27δ2 +256 27δ2 +256

+1 9δ ( +1)
54δ2 −512 54δ2 −512 dnuB1 *
The number of users will be nuB1 *= − , B1 *
ncp =− First differentiation of nuB1 * andncp
B1 *
in δ ( ≥0 ,
81δ2 81δ2 dδ
−1 16 ( −1)
256 256
B1 *
dncp
dδ
≥0) shows that nuB1 * andncp
B1 *
increases in δ .
The profit of MMPO, total utility of all users, total profit of CPs and social welfare are shown following respectively.
Profit of MMPO:
tc −1 3
B1
ΠMMPO B1 *=−0.5, S B1 *=− 27δ 2+256 =δnu n cp ( 1 − pc ) tcp +n S −cu u s −
( ) ( T − 1) − c .
Ts ( Ts−1) δ2tc 2 s
2
s
tcp tc −1 4 2
u
54δ 2−512 δ ( ) − 1 { δ ( ) − 1}
2
2
2 tc −1 4
2
Total utility of all users

nu nu 1
U B1 *= ∫0 ui dθi= ∫0 2
{ 2
δncp ( 1−pc ) +1 − Su θi dθi= δncp ( 1−pc ) +1 − Su nu − nu2 .
2
}
Total profit of CPs
ncp ncp 1 2
B1 *
Πcp = ∫0 π cp dθj= ∫0 δnu ( 1 − pc ) ( pc −tcp )−θj dθj=δnu ncp ( 1 − pc ) ( pc −tcp )− ncp
2
.
Social welfare :
1 2
W B1 *=W = U + Πcp+ΠMMPO=δnu ncp ( 1 − pc )+nu − (nu2 + ncp ) − cs.
2
27δ2 +256 27δ2 +256

+1 9δ ( +1)
54δ2 −512 54δ2 −512 B1 B1 *
After we substitute nuB1 *= − , B1 *
ncp =− into ΠMMPO , UB1 *, Πcp , and W B1 * respectively and then we
81δ2 81δ2
−1 16 ( −1)
256 256
B1 B1 *
can differentiate them in δ . First differentiation of ΠMMPO , UB1 *, Πcp , and W B1 * shows that all these are increasing in δ .
B1
dΠMMPO B1 *
dUB1 * dΠcp dW B1 *
( dδ
≥0, dδ
≥ 0, dδ ≥ 0, dδ ≥ 0 ). Q.E.D.
1) If CMMPO≥0. 8438δ 2 , then social planner will choose not to develop matching technology and charge the fees
B1 (SP) *
tcp δ=0
=1,SuB1 (SP) * δ = 0=0.5.
2) If CMMPO <0. 8438δ 2, then social planner will choose to develop matching technology and charge the fees
B1 (SP) * 54δ2
tcp = − 2,SuB1 (SP) *= 2
.
16 −27δ
As shown in Fig. 5, the social planner’s cost condition, CMMPO=0. 8438δ 2, is greater than that of the MMPO, CMMPO
27δ
¼ . This means that the MMPO would not develop its matching technology until its cost becomes sufficiently low;
4 (256 −27δ2)
27δ
that is, CMMPO o . For example, if δ is on the point of A (δ=0. 7,CMMPO=0. 2), MMPO’s optimal choice is not to develop
4 (256 −27δ2)
matching technology but social planner will choose to do it. Q.E.D.
When the social planner chooses to develop matching technology, the optimal fees for maximizing social welfare are
54δ2
tcp ( ) *= − 2,Su ( ) *=
B1 SP B1 SP
. In this case, the content price is pcB1 ( SP ) *= − 0.5, the network size of each group is
16 −27δ2
54δ2
nu ( ) *=1, ncp ( ) *=1. 5δ2. Total user utility is UB1 ( SP ) *=1. 54 δ 2−
B1 SP B1 SP
+0.5, then the range of total user utility becomes
16 −27δ2
0.5<UB1 ( SP ) *≤10.4716. Total revenue of CPs is Πcp ( ) *=0. 5 × 1. 54 δ 2=2.5315δ 2.Then the range of total CPs revenue becomes
B1 SP
B1 ( SP ) * 54δ2 54δ2
0<Πcp ( ) *≤2.515. The profit of MMPO becomes ΠMMPO
B1 SP
=( −2)×1. 53δ 2+ = − 6. 75δ 2+ ,So the range of
16 −27δ2 16 −27δ2
B1 (SP ) * B1 (SP ) *
ΠMMPO becomes −5.5841<ΠMMPO ≤0. Consequently, the total social welfare becomes
B1 (SP ) *
W B1 (SP ) *=UB1 (SP ) *+ΠcB1 (SP ) *+ΠMMPO =0.844δ 2+0. 5. So the range of social welfare is 0.5<W B1 (SP ) *≤0.844 . Q. E. D.
10.1016/j.telpol.2016.07.001i
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10.1016/j.telpol.2016.07.001i

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Telecommunications Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎

Contents lists available at ScienceDirect

How can we make a socially optimal large-scale media

Fig. 1. Google’s share of US unique visitors 2003-1H12 (visitors, MM, %).

3.1. Before modelling

CPs Users Major revenue source

3.1.1. Pricing types

3.1.2. Three analyzing factors

3.2. Basic framework with matching technology and pricing types

uiB1=δncp (1−pc )2 +k−Su−θi (i=1, 2, 3, ….Nu ) (1)

1. The MMPO chooses their pricing type (pricing type 1, 2, or 3).

MMPO Social planner Π*−ccp≥0 Π*−cs≥0

uiB3=δncp (1−pc )2 +k−θi (12)

Fig. 6. Structure of media platform with advertising.

nuB3=θ^i =δncp (1−pc )2 +k (13)

3.3.1. Adoption of Prosumer Policy (PR)

With the profit maximization condition, S*u can be obtained as follows:

k (16 − δ2−4δl+6δkB+12δklB2−8δ2B3+3δ2B 4 −8δklB)

PR* increases further, which, in turn, has a positive impact

3.3.2. Adoption of Advertising Policy (AD)

uiAD=δncp (1−pc )2 +k−β−θi (. (20)

Maxtcp Π AD =δnu ncp ( 1 − pc ) tcp+nu b−CMMPO

4.1. Findings from basic model

4.2. Findings from extended models

Variable Name Variable description

Parameter Name Parameter description

Appendix 2. Proofs of propositions

A.2.1. Proof of Proposition 1.1

27δ2 +256 dSuB1 *

27δ2 +256 27δ2 +256

Total utility of all users

27δ2 +256 27δ2 +256

A.2.2. Proof of Proposition 1.2

A.2.2. Proof of Proposition 1.3

ATSC (2014). ATSC 3.0: Where We Stand. Retrived from : 〈http://atsc.org/newsletter/atsc-3-0-where-we-stand/〉.

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MMPO Social planner Π−ccp≥0 Π−cs≥0