Abstract Media platforms' business model choices and pricing affect user engagement under competition. In practice, information asymmetry exists between users: advertisers are aware of subscription prices, while consumers remain unaware of advertising charges, creating strategic opportunities for price disclosure by platforms. This study therefore investigates competing media platforms' optimal business‐model choices with price information disclosure strategies. We develop a Hotelling model in which platforms adopt one of three business models: ad‐sponsored (charging only advertisers), subscription‐based (charging only consumers), and hybrid (charging both), while accounting for content production. The results reveal that, contrary to intuition, information asymmetry between users negatively impacts platform profits. The price information disclosure strategy always dominates the nondisclosure strategy. Second, although the hybrid model may not be optimal under some conditions, it always helps platforms attain the largest consumer base by either subsidizing consumers or increasing content production. Third, the optimal choice of business model depends on the interplay among advertiser competition, content costs, attention valuation, and ad aversion. Surprisingly, platforms adopt a subscription‐based model primarily due to intense advertising market competition, not higher ad aversion as commonly expected.
Liu et al. (Wed,) studied this question.
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