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Superstars in Two-sided Markets: Exclusives or Not?

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Competition in many markets is shaped by the presence of Superstars, i.e., very strong players who can decide to offer their product through exclusive contracts. In this paper, we present a tractable model of two-sided platform competition. Platforms act as intermediaries between consumers and content providers. Relative to other content providers, a Superstar is more important for consumers and has market power. When platform competition is intense, consumers are very responsive to the presence of the Superstar. This makes exclusivity more lucrative. Differently, when competition is less intense, consumers tend to stick with their preferred platform. So, the Superstar offers a non-exclusive contract reaching the largest possible audience. This mechanism is self-reinforcing as content providers endogenously fol- low consumer decisions and it is robust to more general set-ups and extensions. Contrary to the common wisdom, in most cases the contract choice of the Superstar is aligned with the first-best outcome in the industry.

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