To Tax or To Subsidize: The Economics of User‐Generated Content Platforms

As user‐generated content platforms are becoming an integral part of our lives, both Internet users and platform owners are eager to see the continuing growth of such platforms, which are nonetheless largely hindered by a number of obstacles, notably low quality content and lack of revenue sources. Typically, users can view the content for free while they post content on user‐generated content platforms voluntarily. This chapter provides a new model for user‐generated content platform, in order to provide a formal analysis on when subsidizing or taxing content producers is profit maximizing for the intermediary. The model is a three‐stage game that is played by the intermediary, content producers, and content viewers. The chapter focuses on a class of payment schemes in which the intermediary subsidizes or taxes content producers on a basis of per content view, while it provides the service for free to content viewers.