Response to Entry in Streaming Markets: A Game-Theoretic Model

The rise of new entrants in content-streaming markets has intensified competition for established platforms like Netflix, prompting them to reassess their pricing and content strategies. In this research, we examine an incumbent streaming platform that offers both exclusive and non-exclusive content, exploring its optimal pricing response to the entry of a competitor providing only non-exclusive content under a subscription or usage-based pricing model. We develop an analytical framework to study the incumbent's strategic choices, focusing on key factors such as consumer heterogeneity, consumption intensity, content acquisition costs, and the entrant's pricing strategy. Our findings reveal that the incumbent does not always differentiate its pricing strategy from the entrant and, under specific conditions, matches its pricing approach. Entry is governed by a cost threshold that depends on consumer valuation and the incumbent’s pricing response, and higher valuation does not always strengthen the entrant’s incentive to enter, as incumbents can deter participation through strategic pricing. Moreover, we show that increased consumption can harm the entrant's profitability when relying on usage-based pricing. We also find that entrants may invest more in content than incumbents when acquisition costs and exclusivity appreciation are low, and that incumbents do not always attain a positional advantage, as market conditions such as valuation and content costs significantly affect profitability. Our work offers actionable insights for streaming platforms navigating competitive markets. Platforms must align their pricing and content strategies with consumer behavior, competitive dynamics, and content characteristics. Our findings provide a robust framework for understanding how incumbents and entrants can optimize their strategies in the evolving landscape of streaming markets, contributing to both academic literature and managerial practice.