Advertising or Brokerage Model for Social Platforms With a Commerce Feature

Abstract

This study analyzes the business model decision of social platforms with a commerce feature. In practice, social platforms can adopt either an advertising model or a brokerage model. We develop a game-theoretic model to recommend the better business model and investigate the effect of social factors on strategy choice. We find that several factors, including the network effects between advertisers and consumers, the basic value of the commerce feature, and the social value, affect the business model decision. Specifically, when the ratio between the network effects of advertisers and consumers is large enough, meanwhile the commerce feature’s basic value and the social value are both at an intermediate level, the advertising model is optimal. Otherwise, the brokerage model is optimal. Interestingly, when the intrinsic value of products is adequately large, the social platform’s profit decreases with the commerce feature’s basic value. Finally, given an increase in the commerce feature’s basic value, when the intrinsic value of the products is in different ranges, the profit and the social platform decision may show different trends.