Are Auction-Based Promotions More Profitable for Short Video Platforms than Fixed Pricing?

Short video platforms have become increasingly prominent in today’s fast-paced world, enabling seamless content creation and consumption by connecting creators with viewers. To increase viewership and subscriber growth, many creators are motivated to promote their videos, leading platforms to introduce advertising options. Although auction-based pricing is commonly used for such promotions, fixed-price models also exist depending on the platform and promotion type. In this study, we analyze the interaction between a platform and its content creators using a classical priority auction model, and we compare it with a fixed-price promotion policy. Our findings show that auctions generate higher platform revenue than fixed pricing but only when the creator-to-viewer ratio on the platform is sufficiently high. When competition for target audiences is limited, auction pricing may actually result in lower revenues for the platform. Second, auctions tend to attract more content creators to promoting their videos on the platform compared with fixed pricing, but this increased participation lowers average engagement of promoted videos. Third, although auctions benefit creators with either high- or low-appeal content, they may reduce utility for those with intermediate-appeal content. However, aggregate creator welfare improves under auctions only when the creator-to-viewer ratio on the platform is relatively small. Fourth, auctions consistently produce higher total utility (platform plus creators) than fixed pricing and achieve a win-win outcome when the creator-to-viewer ratio on the platform is in an intermediate range. Finally, we examine the role of network effects and show that stronger network effects diminish the platform’s incentive to adopt auctions.

History: Karthik Kannan, Senior Editor; Yifan Dou, Associate Editor.

Funding: Z. Wang acknowledges financial support from the National Natural Science Foundation of China [Grants 72322017 and 92467302]. Z.-Z. Jiang acknowledges financial support from the National Social Science Fund of China [Grant 23&ZD050] and the National Natural Science Foundation of China [Grant 92567205].

Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2024.1493.