Optimal Pricing Decisions for the Online Video Platform Under Customer Choice

Abstract

With the development of the video-on-demand (VOD) technology, the audiences can decide to skip the advertisements by paying the video platform. This paper examines the optimal pricing decisions for an online video platform by considering the customer’s choice behavior. Based on a two-sided market that is composed of a monopolistic video platform, advertisers and audiences, we show that the platform’s optimal price charging from the advertisers is decreasing in the degree of audiences’ disutility for advertisements, while the optimal price charging from the audiences is convex in the degree of audiences’ disutility for advertisements. More interestingly, we find that the equilibrium number of advertisers on the platform and the video platform’s profit are both convex in the degree of audiences’ disutility for advertisements, which are counter-intuitive. We also extend our model to the case with two duopolistic platforms and find that the optimal number of advertisers on the platform is concave in the degree of audiences’ disutility for advertisements. Numerical experiments are further presented to reveal the managerial insights.