Fending Off Critics of Platform Power with Differential Revenue Sharing: Doing Well by Doing Good?

Many digital platforms have accrued enormous power and scale, leveraging cross-side network effects between the sides they connect (e.g., producers and consumers or creators and viewers). Platforms motivate a diverse spectrum of producers, large and small, to participate by sharing platform revenue with them, predominantly under a linear revenue-sharing scheme with the same commission rate regardless of producer power or size.

Professor Hemant Bhargava and his co-authors developed a model of platform economics and show that a small-business oriented (SBO) differential revenue sharing design can increase total welfare and outputs on the platform. Their study was published in Informs’ Management Science journal in September 2002.