How Do You Earn Money on Live Streaming Platforms?—A Study of Donation-Based Markets

Abstract

Donation-based markets have been implemented by many online platforms, such as live streaming platforms. In these markets, producers provide services without mandatory charges, and customers enjoy the services and voluntarily donate money to the producers. The donation is split between the producers and platform with a pre-agreed fraction. To gain insights into the market operation, we use a two-stage game to capture the sequential decision process between the platform and producers. In Stage I, the platform decides a donation-split-fraction (DSF), i.e., the fraction of donation kept by the producers. In Stage II, producers decide whether to participate in the platform and (if yes) how to choose their service attributes considering the DSF as well as the producers' and customers' preferences. We prove that the Stage II game is a potential game with a counter-intuitive equilibrium result: although a larger DSF leads to more producer participation and a better match between the producers' choices and the customers' preferences, it does not necessarily lead to more total donation. The Stage I problem, nevertheless, is challenging to solve analytically due to its non-convexity. To gain insights regarding the optimal DSF that maximizes the platform's payoff, we characterize both its upper-bound and lower-bound. We show numerically that the platform's optimal payoff always decreases with the mismatch between the producers' and customers' preferences. Finally, we conduct a case study with the dataset from Twitch and demonstrate the approach of computing the platform's optimal DSF without the producers' inherent preferences.