Paper Type
Short
Paper Number
1623
Description
We develop a game-theoretic model to examine how negative effect of advertising affects a social media platform’s business model choice. We find that higher e-commerce conversion rate makes the platform and the third-party seller more likely to cooperate, which is adjusted downward by the extent of negative advertising effect. Besides, the platform's decision on adopting reselling model is related to negative advertising effect, e-commerce conversion rate, and commission rate. When the e-commerce conversion rate is low, the social media platform always jointly adopts reselling model to compensate the loss of user churn caused by single advertising model. When the e-commerce conversion rate is high and the negative advertising effect is extremely high or extremely low, the platform opens to the third party. In this case, whether the platform adopts reselling model depends only on the extent of the exogenous commission rate.
Recommended Citation
Zhang, Yujin and Song, Wen, "Negative Effect of Advertising on Social Media Platforms’ Business Model Choice" (2024). PACIS 2024 Proceedings. 17.
https://aisel.aisnet.org/pacis2024/track17_socmedia/track17_socmedia/17
Negative Effect of Advertising on Social Media Platforms’ Business Model Choice
We develop a game-theoretic model to examine how negative effect of advertising affects a social media platform’s business model choice. We find that higher e-commerce conversion rate makes the platform and the third-party seller more likely to cooperate, which is adjusted downward by the extent of negative advertising effect. Besides, the platform's decision on adopting reselling model is related to negative advertising effect, e-commerce conversion rate, and commission rate. When the e-commerce conversion rate is low, the social media platform always jointly adopts reselling model to compensate the loss of user churn caused by single advertising model. When the e-commerce conversion rate is high and the negative advertising effect is extremely high or extremely low, the platform opens to the third party. In this case, whether the platform adopts reselling model depends only on the extent of the exogenous commission rate.
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