First-Party Content and Coordination in Two-Sided Markets

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 versus unfavorable) and the nature of the relationship between first-party content and third-party content (complements or substitutes). Platforms facing unfavorable expectations face an additional constraint: their prices and first-party content investment need to be such that low (zero) participation equilibria are eliminated. This additional constraint typically leads them to invest more (less) in first-party content relative to platforms facing favorable expectations when first- and third-party content are substitutes (complements). 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 multi-homing 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.

This paper was accepted by Bruno Cassiman, business strategy.