Business Mode Selection in Digital Content Markets

TL;DR

This paper analyzes the optimal business mode (B2C or C2C) in a two-sided digital content market managed by an intermediary, considering profit and social welfare objectives, and identifies conditions favoring each mode.

Contribution

It provides a theoretical framework for selecting between B2C and C2C modes based on market size, profit, and social welfare considerations, including equilibrium analysis and strategic insights.

Findings

C2C is optimal for profit maximization.

Equilibrium exists and is unique under certain market conditions.

Mode choice depends on content substitutability and compensation feasibility.

Abstract

In this paper, we consider a two-sided digital content market, and study which of the two business modes, i.e., Business-to-Customer (B2C) and Customer-to-Customer (C2C), should be selected and when it should be selected. The considered market is managed by an intermediary, through which content producers can sell their contents to consumers. The intermediary can select B2C or C2C as its business mode, while the content producers and consumers are rational agents that maximize their own utilities. The content producers are differentiated by their content qualities. First, given the intermediary's business mode, we show that there always exists a unique equilibrium at which neither the content producers nor the consumers change their decisions. Moreover, if there are a sufficiently large number of consumers, then the decision process based on the content producers' naive expectation can reach the unique equilibrium. Next, we show that in a market with only one intermediary, C2C should be selected if the intermediary aims at maximizing its profit. Then, by considering a particular scenario where the contents are not highly substitutable, we prove that when the intermediary chooses to maximize the social welfare, C2C should be selected if the content producers can receive sufficient compensation for content sales, and B2C should be selected otherwise.