Superstars in Two-Sided Markets: Exclusives or Not?

Abstract

This article studies incentives for a premium provider (Superstar) to offer exclusive contracts to competing platforms mediating the interactions between consumers and firms. When platform competition is intense, more consumers affiliate with the platform favored by Superstar exclusivity. This mechanism is selfreinforcing as firms follow consumer decisions and some join the favored platform only. Exclusivity always benefits firms and might eventually benefit consumers. A vertical merger (platform-Superstar) makes non-exclusivity more likely than if the Superstar was independent. The analysis provides novel insights for managers and policymakers and it is robust to several variations and extensions.

Multisided Platforms and Markets: A Survey of the Theoretical Literature

“…Intuitively, the presence of a superstar in a playlist may make indie artists more likely to be discovered, thus their opportunity costs are lowered, and their expected profits increased. However, this "expansion" effect implies that the superstar should be compensated, and Carroni et al (2019) find that such compensation can be more than two-thirds of the total surplus created. Hogendorn and Ka Yat Yuen (2009) show that, in some cases, a negative price on those special customers could be optimal for the smallest platform.…”

“…Influencers are a clear example of these consumers, and their presence in multisided platforms also influence pricing. Rochet and Tirole (2003) and Hogendorn and Ka Yat Yuen (2009) show that "marquee buyers" or "must-have" components increase prices on the opposite side, and Carroni et al (2019), who coined the term "superstar" to mention those consumers, find that, if only one platform has those superstars, their prices are higher than competitors, and via network effects, the content variety and the number of other consumers on the same side increases. Intuitively, the presence of a superstar in a playlist may make indie artists more likely to be discovered, thus their opportunity costs are lowered, and their expected profits increased.…”

“…the entrant. Hogendorn and Ka Yat Yuen (2009) use a Cournot model and highlight that the must-have component providers will prefer to sign an exclusivity contract when compatibility is low, and the size assymetry in terms of market share between platforms is high, and Carroni et al (2019) expect such exclusivity when differentiation is low.…”

“…However, this “expansion” effect implies that the superstar should be compensated, and Carroni et al . (2019) find that such compensation can be more than two‐thirds of the total surplus created. Hogendorn and Ka Yat Yuen (2009) show that, in some cases, a negative price on those special customers could be optimal for the smallest platform.…”

“…In a similar vein, Carroni et al . (2019) study whether the presence of an agent that generates large externalities on the other side (a superstar) may also convince agents on the same side to stop multihoming and join the platform exclusively. Because more agents singlehome on the superstar side, that attracts more demand, which attracts more agents on the superstar side, and so on.…”