An economic analysis of different types of subsidies by UGC platforms

In this study, we build an economic model to explore the user-generated content (UGC) subsidy issue in the context of two-sided UGC platforms. Most UGC platforms subsidize content providers to encourage them to provide more content with higher quality. However, are these subsidies effective? Which type of subsidy is more effective? Here, we examine and compare the effectiveness of different types of subsides for UGC platforms. First, although the underlying reasons are different, both quantity and attention subsidies can induce users to provide more content with higher quality. Second, given the same level of small subsidy, the attention subsidy is more effective in encouraging better UGC quantity and quality. Third, the optimal subsidy level positively depends on the content provider’s sensitivity to the subsidy. In most cases, the magnitude of the optimal quantity subsidy should be larger than that of the optimal attention subsidy. Finally, to maintain or improve UGC quality, the platform should set a threshold to restrict the amount of content accessible to viewers. Doing so can prevent content providers from offering more content at the expense of content quality.