Profit maximization on user-generated content platforms

In this paper, we consider a user-generated content platform monetized through advertising and managed by an intermediary. We study a payment scheme in which the intermediary either taxes or subsidizes a content producer an amount of money proportional to the number of views of the producer´s con- tent. First, we use a model with a representative content viewer to determine how the content viewers´ attention is allocated across available content by solving a utility maximization problem. Then, by modeling the content producers as self-interested agents making independent production decisions, we show that there exists a unique equilibrium in the content production stage, and propose a best-response dynamics to model the decision-making process and to reach the equilibrium. Next, we study the optimal payment scheme (i.e., the payment scheme maximizing the intermediary´s profit) that the intermediary chooses taking into account the decisions made by the representative content viewer and the content producers. In particular, by considering the well-known quality-adjusted Dixit-Stiglitz utility function for the representative content viewer, we derive explicitly the optimal payment per content view and characterize analytical conditions under which the intermediary should tax or subsidize the content producers. Numerical results show that under some scenarios, by using the proposed payment scheme, the intermediary may even double its profit that can be obtained without the proposed scheme.