Fending Off Critics of Platform Power with Differential Revenue Sharing: Doing Well by Doing Good?
![Entertainment and digital platforms image from iStock Photo](/sites/default/files/styles/standard_scale_and_crop/public/2022-09/Digital%20platforms.jpg?h=da762795&itok=JNFF3vT2)
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.