First-Party Content, Commitment and Coordination in Two-Sided Markets

The strategic use of first-party content by two-sided platforms is driven by two key factors: the nature of buyer and seller expectations (favorable vs. unfavorable) and the nature of the relationship between first-party content and third-party content (complements or substitutes). As a result, first-party content is a strategic instrument that plays a dual role. On the one hand, it enables platforms facing unfavorable expectations to compensate for their difficulty in attracting third-party sellers. They should over-invest in first-party content which substitutes for third-party content relative to platforms benefitting from favorable expectations. On the other hand, platforms that benefit from favorable expectations capture a larger share of total surplus from buyers and sellers. They derive a higher return on investment in first-party content that complements third-party content relative to platforms facing unfavorable expectations. As a result, the latter under-invest in complementary first-party content. These results hold with both simultaneous and sequential entry of the the two sides. With two competing platforms incumbent facing favorable expectations and entrant facing unfavorable expectations and singlehoming on one side of the market, the incumbent always invests (weakly) more in first-party content relative to the case in which it is a monopolist. "Content is king" (Gates (1996))