On click-fraud under pro-rata revenue sharing rule

TL;DR

This paper analyzes click-fraud vulnerabilities in pro-rata revenue sharing on music platforms, showing its robustness against fraud and proposing a hybrid rule to mitigate fraud while maintaining fairness.

Contribution

It develops a non-cooperative model of fraud activity, demonstrating pro-rata's robustness and proposing a weighted rule to balance fairness and fraud prevention.

Findings

Pro-rata is fraud-robust: honesty is dominant when fraud technology is weak.

A unique fraud equilibrium exists when fraud technology is strong, but fake streams are bounded.

A parametric weighted rule can restore a fraud-free equilibrium under technological constraints.

Abstract

Click-fraud is commonly seen as a key vulnerability of pro-rata revenue sharing rule on music streaming platforms, whereas user-centric is largely immune. This paper develops a tractable non-cooperative model in which artists can purchase fraud activity that generates undetectable fake streams up to a technological limit. We defend pro-rata by showing that it is fraud-robust: when fraud technology is weak, honesty is a strictly dominant strategy, and an efficient fraud-free equilibrium obtains; when fraud technology is strong, a unique fraud equilibrium arises, yet aggregate fake streams remain bounded. Although fraud is inefficient, the resulting redistribution may improve fairness in some cases. To mitigate fraud without abandoning pro-rata, we introduce a parametric weighted rule that interpolates between pro-rata and user-centric, and characterize parameter ranges that restore a fraud-free equilibrium under technology constraint. We also discuss implications of Spotify's modernized royalty system for fraud incentives.