Can social media platforms charge their users?

What is it about?

Traditionally social media platforms offered free service to users. The recent implementation of the pay-for-subscription model by some social media platforms motivated us to examine the equilibrium conditions under which the platforms can charge users. We model price competition between two horizontally differentiated platforms that can charge both the advertisers and users. The main results are: (i) Sufficiently strong platform preferences of the users enable the platforms to charge the users when they singlehome; (ii) Independent of parameter conditions, the platforms can charge the users when they multihome and advertisers singlehome.

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Why is it important?

Horizontally differentiated platforms compete in price, for users and advertisers. The model considers partial multihoming and advertisement nuisance. Singlehoming users can be charged if they have strong platform preferences. Platforms can charge the users when they multihome and advertisers singlehome. Users can be charged under some parameter restrictions, in all homing conditions.