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The Long Tail Wags the Dog: Platform Design and Bargaining with Majors
We study a platform that interacts with a major content provider, a long tail of independent providers, and consumers who allocate attention across competing content. By designing independent-provider compensation, the platform endogenously shapes its outside option and disciplines the major. This strategic use of long-tail compensation distorts entry relative to the first best. Allowing the platform to steer consumer attention improves entry incentives conditional on compensation, but affects bargaining incentives, and may thus increase or decrease welfare. We then consider regulation, showing that conservative minimum-compensation floors robustly improve welfare, while non-discrimination policies have ambiguous welfare effects.
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